SIR Mervyn King, the departing governor of the Bank of England, is unlikely to deliver an early Christmas present to the UK economy this week despite the growing threat of a “triple-dip” recession.
The bank’s nine-strong monetary policy committee (MPC), which is chaired by King, is widely expected to sit on its hands at the conclusion of December’s rate-setting meeting.
While the decision will provide further respite for borrowers, with interest rates tipped to remain at 0.5 per cent for at least another two years, there have been calls for the central bank to step up its programme of quantitative easing to help buoy the economy.
That gilt buying was halted last month when July’s £50 billion extension was used up. Minutes from November’s MPC meeting showed that just one member of the committee – David Miles – had pushed for more QE.
A raft of downbeat data in recent weeks, including weak performances in the retail and manufacturing sectors, has fuelled concerns that the UK economy is heading for a renewed dip in the fourth quarter.
Last week, the Organisation for Economic Co-operation and Development warned that Britain would be hit with rising unemployment next year as its economic recovery is held back by Eurozone woes, spending cuts and the global slowdown.
Howard Archer, chief UK economist at forecasting group IHS Global Insight, said a boost in QE this Thursday appeared “highly unlikely”, while an interest rate cut was “completely off the agenda”.
Pointing to recent inflation concerns and “worrying” economic survey data, Archer said: “There seemed little likelihood from the minutes of the November MPC meeting that more QE could happen as soon as December.
“However, with economic recovery currently looking feeble, fragile and far from guaranteed, we continue to lean towards the view that the Bank of England will ultimately decide to give the economy a further helping hand with a final £50bn of QE.
“We expect this to occur during the early months of 2013, very possibly in February.”
Citi economist Michael Saunders said the prospects for the UK economy remained weak, with a number of headwinds including poor credit availability, the euro crisis and fiscal drag.
“Even with the 1 per cent Q3 rebound [in gross domestic product], this remains the worst recession/recovery cycle for many decades,” he added.