Bank of England keeps rates on hold despite weak factory output

DESPITE figures showing a shock fall in UK manufacturing output, the Bank of England yesterday held back from providing further emergency support to the economy through more quantitative easing (QE) and held interest rates again.

The 1 per cent drop in factory output recorded by the Office for National Statistics (ONS) for February flew in the face of a series of more upbeat business surveys, which had indicated a modest recovery.

Economists had forecast a 0.1 per cent month-on-month rise in manufacturing output, but some questioned whether the official data was a reliable indicator of the wider picture and pointed to the ONS wider measure of industrial production – including energy and mining – which showed a 0.4 per cent rise.

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Forecasts published yesterday by the National Institute of Economic and Social Research (NIESR) also estimated the overall economy saw growth of 0.1 per cent in the first three months of the year, which would mean it avoided falling back into a technical recession.

At its monthly meeting yesterday, the Bank of England’s Monetary Policy Committee (MPC) kept the total of its asset purchases under the QE programme at £325 billion and interest rates at their record low of 0.5 per cent.

The Bank is forecasting that lower inflation will bring some relief to consumers and stimulate more consumption.

Ian McCafferty, from the Confederation of British Industry (CBI) said although recent economic data had been more encouraging, with oil prices high there was now less certainty around “how far and how fast inflation will fall”.

A sizeable minority of economists still expect more stimulus in the form of QE from the Bank – though not until May at the earliest, when its current asset purchase programme ends.

Howard Archer, from IHS Global Insight, said he believed the economy was likely to stutter over the coming months in the face of “still serious domestic and international headwinds” and that a majority of MPC members may feel that a “final small helping hand is in order”.

Meanwhile, figures released today suggested the unseasonably warm weather in March had provided a boost to retailers. The BDO High Street Sales Tracker showed like-for-like sales jump 2 per cent year-on-year. In the US, a Thomson Reuters’ forecast also suggested that many major retailers will see gains of more than 5 per cent during March.