Bank rate held despite gloom over UK growth

The Bank of England held fire on more help for the struggling British economy yesterday as the Chancellor faced fresh calls to tear up austerity plans.

The Monetary Policy Committee held interest rates at 0.5 per cent and announced no further additions to its quantitative easing programme of money printing, which stands at £375bn.

The Bank's decision came on a turbulent day for global markets, as the European Central Bank president Mario Draghi's lack of firm commitment on more support for the eurozone's strugglers sent shares plunging worldwide and the debt costs of embattled Spain and Italy soaring again.

The latest forecasts from the National Institute for Economic and Social Affairs (NIESR) also warned of a stark 0.5 per cent slide for the UK economy this year.

This is well below the more optimistic forecasts of the BoE, which predicts 1 per cent growth this year, and the Office for Budget Responsibility, which has pencilled in a 0.8 per cent expansion.

NIESR gave a cautious welcome to the Government's £80bn Funding for Lending scheme launched on Wednesday, which sees banks willing to expand their lending in the real economy rewarded with cheaper cash from the central bank.

But it criticised the Coalition's "piecemeal approach", saying: "It remains the case that there is scope for a less aggressive path of fiscal tightening. The Government should consider on-balance sheet funding of key projects, concurrent with a comprehensive restructuring of banks and key funding markets."

The think-tank believes the Chancellor is still on track to hit his goal of balancing the UK's structural deficit by 2016-17, but also warned of downside risks to its forecasts from the turmoil in the eurozone.

The MPC, meanwhile, is unlikely to take more action until it has assessed the impact of the new Funding for Lending scheme. But many experts believe the committee may be forced to further extend QE in the autumn if the economy fails to pick up.

Vicky Redwood, the chief UK economist at Capital Economics, said: "We expect both an interest rate cut and a further extension of the asset purchase programme before the end of the year."

RSA drives to a profit from car insurance

RSA, the insurer best known for its More Than brand, made a profit on car insurance for the first time in four years.

By cutting back business levels by 19 per cent and not chasing unprofitable lines, the insurer's "combined operating ratio" is now below 100 – that means it is taking in more in premiums than it is paying out in claims.

In the half year to June, RSA saw operating profits fall by 23 per cent to £316m. Analysts had pencilled in profits of £297m.

The decline was driven by an estimated £40m loss related to Britain's floods, and a further £35m hit from earthquakes that struck Italy's Emilia Romagna region in May.