Rate-setters unconvinced of rally's staying power

The Bank's rate-setters still harbour "uncertainties over the durability of the recovery", it emerged yesterday, despite Threadneedle Street sharply upgrading its growth forecasts.

Minutes of the Monetary Policy Committee's November meeting also underlined that interest rates could stay at their 0.5 per cent record low after unemployment reaches the 7 per cent threshold under the Bank's forward guidance, as long as infla- tion expectations remain under control.

If rates remain unchanged the Bank believes the threshold could be hit as soon as the end of next year.

The Bank believes growth could accelerate to 0.9 per cent in the final three months of the year but stressed upward and downward risks to the economy thereafter.

The MPC said rising confidence and easing credit conditions could encourage businesses to kick-start in-vestment spending, but also worried that the pressure of clearing debts and falling real incomes could snuff out a consumer recovery before firms could be persuaded to spend.

The upturn in the eurozone was also "fragile and in its early stages", the committee minutes noted.