MPC holds rates steady as economy shows gentle signs of life

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The Independent Online

The Bank of England's Monetary Policy Committee (MPC) voted to hold interest rates flat at 0.5 per cent yesterday as gently positive economic data supported hopes of recovery.

Improvements in both industrial output and house prices suggested that previous dips could be blamed on harsh weather rather than presaging a slide back into recession. Car sales also showed improvement, notwithstanding concerns about the effect of the end of the Government's vehicle scrappage subsidy. The MPC's "wait and see" approach to interest rates came as little surprise to the City, partly because of the imminence of the general election, but also because its members remain cautious about the sustainability of Britain's tentative economic growth.

Meanwhile, there were clear signs of improvement in other data yesterday. The National Institute of Economic and Social Research (NIESR) blamed the heavy winter snowfalls for its GDP growth estimate being 0.4 per cent for the quarter to March – the same as for the three months to February.

The NIESR said that, given January's cold snap and the increase in VAT, underlying growth was "probably greater". It estimated that output was 1.1 per cent higher than when Britain came out of recession last September.

Data from individual sectors told a similar tale. Industrial production rose twice as fast as expected in February, posting its biggest monthly rise since September, the Office for National Statistics said. Output was 1 per cent higher than in January, which registered a 0.5 per cent monthly fall.

Alan Clarke, at BNP Paribas, said: "It snowed in January, prompting a drop in output. When the snow melted in February, output resumed."

House price data from the Halifax also confirmed the rosier picture. After falling in February, prices bounced back by 1.1 per cent in March, taking average prices 9.1 per cent higher than last April's low, but further increases are not assured. "March is historically buoyant for the housing market," said Catherine Penman, of the property specialist Carter Jonas. "But the market is in limbo and a clear trend will not emerge until after the general election."

Car sales were up 27 per cent in March and registered their ninth consecutive month of growth, the Society of Motor Manufacturers and Traders (SMMT) said. But the numbers were boosted by 12.2 per cent by the Government's scrappage scheme, which has now come to an end. Despite the strong performance, sales are still lower than in March 2008.

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