Bank of England expected to keep interest rates on hold

BANK of England rate-setters are poised to stick to their guns after Britain's economic recovery lost ground in the first three months of this year.

Official figures yesterday showed GDP increased by just 0.2 per cent in the quarter, half the rate forecast by analysts who had expected growth to continue at the same 0.4 per cent pace set in the closing months of 2009.

In the wake of the disappointing data, which could yet be revised upwards, economists said the central bank was likely to avoid tightening monetary policy any time soon.

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Minutes from April's meeting of the bank's monetary policy committee – published earlier this week – revealed that all nine members voted to keep interest rates at a record low of 0.5 per cent, while freezing the bank's 200 billion programme of quantitative easing.

However, some policymakers voiced concerns over stubbornly high inflation levels.

Reacting to the latest GDP data, Jonathan Loynes, of Capital Economics, said: "With the recovery still very fragile and a major fiscal tightening ahead under any form of government, suggestions that the MPC should soon be tightening monetary policy to ward off inflationary pressures seem clearly premature."

David Kern, chief economist at the British Chambers of Commerce, said: "Although still weak, GDP has now recovered for two quarters in a row, so it is important for policymakers to focus on ensuring that the recovery continues and a double-dip recession is avoided."