UK still in danger of recession, says Bank of England

 

The UK is still in danger of falling into recession, according to the Bank of England, but further emergency support is looking less likely amid concerns over inflation.

A sharp fall in construction output and a loss of activity around the forthcoming jubilee bank holiday could trigger further falls in gross domestic product (GDP), the Monetary Policy Committee (MPC) warned, following a 0.3% drop at the end of last year.

Despite the spectre of a technical recession, the MPC was encouraged by a wide range of survey indicators and data for the powerhouse services sector, which point towards underlying growth in the first half of the year.

The rate of inflation is also likely to fall more slowly than previously expected as rising oil and gas prices, as well as duty increases in the Chancellor's Budget, hike up the cost of living, the MPC said in minutes from its April meeting.

The nine-strong committee voted unanimously in favour of holding interest rates at a record low of 0.5% while only one member, David Miles, voted in favour of increasing the Bank's quantitative easing programme from its level of £325 billion.

Vicky Redwood, chief UK economist at Capital Economics, said additional emergency support in May was less likely but has not ruled out a further QE boost later in the year.

She said: "The committee now sees a greater chance of inflation persisting in the medium-term. And although the MPC highlighted the risk that the economy might contract again in the first or second quarter, it seems to put more weight on the more upbeat survey data."

In a further sign that QE is less likely in the short term, MPC member Adam Posen did not vote for an increase to the asset purchase programme.

Mr Posen has been an advocate of boosting QE for many months, voting in favour of a cash injection long before the MPC decided to switch on the printing presses again in October last year.

The meeting was also held before March inflation figures were published, which revealed an unexpected increase in the consumer prices index (CPI) to 3.5%, moving away from the Bank's 2% target.

The April minutes said: "To the upside, the risk was that elevated inflation might be more persistent than the committee expected and that the committee's commitment to achieving the target might be called into question."

However, the MPC said the possibility of further contractions in GDP in the first and second quarters of the year might "further damage household and business confidence".

The pound, buoyed by the weakening prospect of further QE, shot up against most major currencies after the minutes were published.

Sterling, which surged earlier in the week against the euro amid concerns over Spain's creaking finances, hit fresh 19-month highs today against the single currency.

David Kern, chief economist at the British Chambers of Commerce (BCC), said an increase in QE was not necessary.

He said: "The MPC's main priority should be ensuring that the large amount of assets already purchased is put to better use. The recent increase in QE should be used to help increase the flow of lending to businesses."

PA

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones