Bank of England to hold back on emergency support

The Bank of England is expected to hold back from unleashing extra emergency support for the British economy today amid mixed signals over the fate of the recovery.

Bank of England to hold back on emergency support

The Bank of England is expected to hold back from unleashing extra emergency support for the British economy today amid mixed signals over the fate of the recovery.

The Bank's Monetary Policy Committee (MPC) is forecast to keep its quantitative easing (QE) stock at £325bn (€391.8bn), after injecting £50bn (€60.3bn) in February, while holding interest rates at a record low of 0.5%.

The MPC's April meeting follows a run of positive surveys on the manufacturing, construction and services sectors, suggesting the economy returned to growth in the first quarter of the year.

However, the picture is not clear as influential forecaster, the Organisation for Economic Co-operation and Development, believes the UK probably entered recession in the first three months of the year.

Despite the tentative signs of improvement and evidence that the Bank's American counterparts at the Federal Reserve are increasingly moving away from further QE, some economists expect another multi-billion cash injection later in the year.

Howard Archer, chief economist at IHS Global Insight, said no change in monetary policy was a "dead certainty" but believes there is still a possibility of more QE later in the year.

He added: "We have a sneaking suspicion that the Bank of England is not quite yet done on the QE front. This reflects our belief that the economy is likely to stutter over the coming months and a majority of MPC members may feel that a final small helping hand is in order."

Fewer members of the Fed said more QE in the US could be necessary in the future at its March meeting than in previous months, according to minutes published on Tuesday.

However, investors were not convinced by the Fed's optimism and the Ftse 100 Index fell by more than 1% after the minutes were published.

Two of the MPC's nine members are expected to repeat calls for an additional £25bn (€30.1bn) QE boost but are set to be outvoted by those who do not want to rush into pumping more money into the economy as it could push up inflation.

Vicky Redwood, chief economist at Capital Economics, has predicted no change in policy tomorrow, but expects further QE later in the year.

She said: "The MPC appears to be increasingly divided between those members who want to provide the economy with more stimulus and those who think that they have now done enough."

The recovery has shown tentative signs of gathering pace, with data published today showing the powerhouse services sector grew at a faster-than-expected rate in March.

But the economy shrank by a bigger than previously thought 0.3% in the final quarter of 2011, while influential forecaster the OECD said there was a further contraction of 0.1% in the first three months of 2012, meaning the economy was back in recession.

However, most economists think growth will be sluggish and lacklustre for at least the next three months, while there are also doubts as to whether inflation falls back to its 2% target in the coming months, as the Bank has predicted.

Inflation eased to 3.4% in February from its peak of 5.2% in September and its continued reduction is seen as being key to the recovery because it will alleviate the squeeze on consumers and spark a rise in spending.

But at its last meeting, in March, the Bank said high oil prices and rising mortgage rates threatened its forecast and could weaken global growth.

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