Cash injection of £50bn aims to avert slump

By Scott Reid
Published on Sunday 5 February 2012 00:00

BANK of England policy- makers are this week expected to pump at least £50 billion of fresh cash into the economy even though a double-dip recession is looking less likely.

It will also hold interest rates at 0.5 per cent – a level at which they have been frozen for almost three years – as it tries to reinvigorate growth.

Britain’s economy shrank in the final three months of 2011 as manufacturers and construction businesses scaled back production. A further contraction in the current quarter would tip the country back into recession.

However, a raft of upbeat economic reports in recent days has raised hopes that Britain can avoid a slump.

On Friday it emerged that the powerhouse services sector, which accounts for almost three-quarters of the economy, had grown at its fastest pace in almost a year.

Economists said the case for additional fiscal stimulus did not rest on the outcome for Q1 growth, and pointed out that the economy was still about 3 to 4 per cent below its level prior to the 2008-09 recession.

The Bank of England last raised its programme of quantitative easing (QE) – effectively printing money to buy back bonds and other assets – in October. That additional £75bn of stimulus was due to be spent by early February.

Most experts believe the Bank’s monetary policy committee (MPC) will extend QE by £50bn at this week’s rate-setting meeting, taking the total programme to £325bn.

Howard Archer, chief UK economist at IHS Global Insight, said more QE was “odds-on” despite “some recent encouraging survey evidence”.

He said: “We expect a £50bn dosage of QE, but a larger portion of £75bn cannot be ruled out even though this looks less likely given the recent improved economic surveys.”

Archer noted that a recent sharp fall in consumer inflation to 4.2 per cent as well as muted wage growth had increased the scope for the Bank to provide a fresh boost “without undermining its credibility”.

Analysts at Lloyds Bank also forecast a £50bn injection of QE this week followed by a likely £75bn in the coming months, but noted that MPC members would have “more to discuss than we had previously anticipated” following the recent upbeat economic surveys.

Citigroup economist Michael Saunders predicted £75bn worth of QE on Thursday, exceeding the £50bn consensus.

“The MPC already signalled in November that their extra £75bn would not be enough… and that was based on pretty optimistic economic growth forecasts,” he said.

Saunders said the central bank’s latest inflation report, which is due next week, was likely to show that even with the extra QE, inflation would come in below target “two to three years ahead”.

He added: “We continue to expect the QE programme will reach about £600bn by the end of 2012 or into 2013.”

Friday’s purchasing managers’ index (PMI) for the services sector helped buoy investor confidence and followed PMI releases showing that manufacturing unexpectedly returned to growth last month.

Economists said that if the rate of growth was to be sustained throughout the whole of 2012, the UK would grow at between 2 per cent and 2.5 per cent.

However, the respected think-tank NIESR has forecast that the economy will shrink by 0.1 per cent in 2012 amid weak investment and uncertain conditions.

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CheesyQ

Thursday, February 9, 2012 at 06:05 PM

And we want these feckers to run our currency post independence. Bring on the Euro!

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FTH22inarow

Sunday, February 5, 2012 at 09:28 AM

That should cover the bonus season at the City of London Banks, the robbery continues.

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