The Bank of England held interest rates at a record low today as policymakers treated recent signs of a tentative recovery with caution.
The Monetary Policy Committee (MPC) left borrowing costs unchanged at 0.5% for the 10th month in a row and made no move on its £200 billion efforts to boost the money supply.
The decision comes despite figures this week showing a two-year high for manufacturing activity, recovering mortgage lending and a raft of positive Christmas trading updates from across the high street.
Although the UK is expected to have finally emerged from recession in the final quarter of 2009, experts predict the MPC will leave interest rates on hold well into this year to avoid threatening a fragile recovery.
The Bank's programme of quantitative easing to support the economy is due to end next month, when rate-setters will make a fresh assessment of its impact alongside the latest forecasts on inflation and growth.
Lee Hopley, chief economist with the EEF manufacturers' organisation, welcomed the MPC's decision to hold while the strength of the recovery "remains in doubt".
"There are a number of potential pitfalls even as the UK economy starts growing again, including cautious consumers, questions over the public finances and a still-fragile banking system. The MPC is right to stick until the economic picture becomes clearer," she said.
The MPC will have digested a wide range of more positive data at its two-day meeting after a torrid 18 months for the economy.
Manufacturers enjoyed their best month for two years during December, according to survey data from the Chartered Institute of Purchasing & Supply. CIPS also reported an eighth month of growth from the UK's dominant services firms.
Meanwhile the number of mortgages approved for house purchase in November also reached the highest level since March 2008, while the Halifax today recorded a sixth successive month of rising property prices.
On the high street, John Lewis boasted a record-breaking Christmas, Sainsbury's and Next surpassed City expectations and Marks & Spencer returned to like-for-like sales growth for the first time in more than two years.
But "exceptional uncertainties" over the outlook for inflation and growth are likely to keep the Bank from making any sudden moves.
Foremost among the MPC's concerns are the willingness of banks to lend to private firms, prospects for unemployment, and the size and speed of Government efforts to restore dire public finances to health - which will depend on who wins the general election.
The MPC is charged with keeping Consumer Price Index inflation at 2% but expects it to soar above the target in the months ahead as the temporary cut in VAT comes to an end, potentially above the 3% threshold requiring an open letter to Chancellor Alistair Darling.
But rate-setters predict inflation will be subdued over the long term by the degree of spare capacity in the economy, which has shrunk by 6% since the recession began.
Stephen Boyle, head of group economics at Royal Bank of Scotland, said: "The tough decision will come in February: recent signs of improvement may be sufficient to take a pause, but there is still an argument for a further stimulus to try and cement the recovery."Reuse content