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UK 'still in danger of recession'

The UK is still in danger of falling into recession, according to the Bank of England, but further emergency support is looking less likely amid concerns over inflation.

A sharp fall in construction output and a loss of activity around the forthcoming jubilee bank holiday could trigger further falls in gross domestic product (GDP), the Monetary Policy Committee (MPC) warned, following a 0.3% drop at the end of last year.

Despite the spectre of a technical recession, the MPC was encouraged by a wide range of survey indicators and data for the powerhouse services sector, which point towards underlying growth in the first half of the year.

The rate of inflation is also likely to fall more slowly than previously expected as rising oil and gas prices, as well as duty increases in the Chancellor's Budget, hike up the cost of living, the MPC said in minutes from its April meeting.

The nine-strong committee voted unanimously in favour of holding interest rates at a record low of 0.5% while only one member, David Miles, voted in favour of increasing the Bank's quantitative easing programme from its level of £325 billion.

Vicky Redwood, chief UK economist at Capital Economics, said additional emergency support in May was less likely but has not ruled out a further QE boost later in the year.

She said: "The committee now sees a greater chance of inflation persisting in the medium-term. And although the MPC highlighted the risk that the economy might contract again in the first or second quarter, it seems to put more weight on the more upbeat survey data."

In a further sign that QE is less likely in the short term, MPC member Adam Posen did not vote for an increase to the asset purchase programme.

Mr Posen has been an advocate of boosting QE for many months, voting in favour of a cash injection long before the MPC decided to switch on the printing presses again in October last year.

The meeting was also held before March inflation figures were published, which revealed an unexpected increase in the consumer prices index (CPI) to 3.5%, moving away from the Bank's 2% target.

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