Belfast Telegraph

Bank to hold interest rates despite calls for QE top up

By Jamie Grierson

The Bank of England is expected to hold back from issuing another dose of emergency medicine to help the ailing British economy today, but economists expect it to "leave the door wide open" for action next month.

Most experts in the City believe the Bank's Monetary Policy Committee (MPC) will keep its quantitative easing programme at £275bn and interest rates on hold at their record low of 0.5%.

The no-change is forecast despite a call from the British Chambers of Commerce to increase its support with a £50bn top-up to QE, following October's shock increase.

Howard Archer, chief UK and European economist at IHS Global Insight, expects the Bank to boost QE by a further £50bn in February and a further £50bn in May as a result of "the worrying and uncertain outlook".

Recent economic data have shown a higher-than-expected lift in economic growth in December, which may have surprised the MPC.

Growth in the powerhouse services sector, which makes up 75% of the UK economy, is likely to have saved the wider economy from contraction in the final quarter, while surveys reported growth in manufacturing and construction.

However, the crisis in the eurozone - which the Bank cited as one of the key threats to the UK recovery - continues to rumble on as EU leaders are yet to deliver a plan to resolve the region's problems.

British Chambers of Commerce chief economist David Kern said: "With the Government's tough deficit-cutting measures squeezing domestic demand, and problems in the eurozone creating difficulties for exporters, UK monetary policy must remain as expansionary as possible.

"We believe that an immediate announcement would boost confidence and ease concerns over the situation in the eurozone."

The minutes from the MPC's last meeting in December suggested a further cash injection to boost the economy was highly probable but not until at least February, as the committee completes the current round of QE announced in October.

Holding interest rates at 0.5% will be welcomed by borrowers, but the extended period of lower lending spells more misery for pensioners and savers, who will continue to suffer low returns at a time when inflation is eroding the value of their deposits.

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