Bank holds back on emergency cash

The Bank of England is expected to keep quantitative easing at 325 billion pounds
5 April 2012

The Bank of England has held back from pumping more emergency cash into the economy amid hopes that the UK has avoided a technical recession in the first three months of the year.

The Bank's Monetary Policy Committee (MPC) kept its quantitative easing (QE) stock at £325 billion, after injecting £50 billion in February, while holding interest rates at a record low of 0.5%.

The MPC's April meeting follows a number of positive surveys that have suggested the economy returned to growth in the first quarter of the year.

But the upbeat mood in the City was jolted by figures showing a surprise contraction in manufacturing activity in February.

Many economists still expect another multibillion cash injection from the Bank later in the year, possibly in May and despite American counterparts at the Federal Reserve increasingly moving away from further QE.

Minutes of a meeting published on Tuesday showed fewer members of the Fed said more QE in the US could be necessary in the future. This shook world markets, with the FTSE 100 Index down by more than 2% on Wednesday.

In London, two of the MPC's nine members are likely to have repeated calls for an additional £25 billion QE boost during Thursday's meeting. But they will have been outgunned by those who do not want to rush into pumping more money into the economy as it could push up inflation.

The UK's recovery has shown tentative signs of gathering pace, particularly after 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 this year, meaning the economy was back in recession.

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 will fall 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.

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