Bank tipped to hold interest rates again

THE Bank of England is tipped to remain in “wait and see mode” this week as the economy balances on a knife edge, though further money-printing before the summer is not being ruled out.

Analysts believe bank policymakers will vote in favour of holding interest rates at their record low of 0.5 per cent at the conclusion of their monetary policy meeting on Thursday.

The central bank’s programme of quantitative easing (QE) is also almost certain to be held at £325 billion, as February’s injection of £50bn works its way through the system.

The British Chambers of Commerce, which has previously argued vigorously for increases in QE, says that further fiscal stimulus at this stage would have only “marginal effects”.

There have been signs of increasing tension within the Bank of England’s nine-strong monetary policy committee in recent months. Those splits are likely to intensify amid conflicting messages over the outlook for the economy.

Official figures last week showed that gross domestic product (GDP) shrank by 0.3 per cent in the final quarter of 2011, as the crucial service sector faltered and household spending slumped. The outcome was worse than previous estimates of 0.2 per cent.

Most economists are still expecting a modest rebound in first-quarter GDP, although the Organisation for Economic Co-operation and Development (OECD) last week forecast a 0.1 per cent quarter-on-quarter contraction – which would officially signal a recession.

Howard Archer, chief UK economist at IHS Global Insight, said: “The outlook for monetary policy in April is crystal-clear with no change in interest rates or the amount of QE a racing certainty, but the outlook thereafter is murkier.

“We lean towards the view that the bank will do a final £25bn more QE. This could very well happen in May, although it could be delayed until the third quarter.”