Belfast Telegraph

Bank expected to inject extra £50bn into economy

By Jamie Grierson

The Bank of England is expected to unleash another multi-billion round of emergency support for the UK economy despite signs that its financial health may be starting to improve.

The Bank's Monetary Policy Committee (MPC) is forecast to today increase its quantitative easing (QE) programme by £50bn to £325bn in a bid to stave off a recession, while it will also hold interest rates at record lows of 0.5%.

Many economists had previously expected the MPC to inject an even greater sum into the economy but surprisingly upbeat industry surveys for January have forced some to revise down their estimates.

The Markit/CIPS surveys showed that the manufacturing sector returned to growth in January, while the powerhouse services sector saw a record leap in optimism.

Angela McGowan, chief economist at Northern Bank, said that the UK has the potential to avoid a mild technical recession.

"Retail sales in December were good - up 2.6% year on year - and Purchasing Managers Index (PMI) data for the service sector in January rose to 56, suggesting strong expansion," she said.

"So, despite the contraction at the end of last year, there is some hope for staying on track in Quarter 1 this year.

"Challenges certainly remain, but fears may have been exaggerated.

"Inflation is coming down rapidly, albeit from a high level, and is likely to undershoot the BoE's 2% target later this year ... We expect the Bank of England (BoE) will lift the asset purchase target by £50bn to £325bn and leave the base rate unchanged at 0.50% on Thursday."

The Government and Bank have both placed much of the blame for the UK's economic difficulties on the troubles in the eurozone, which still have no clear resolution.

But the MPC has in recent months held fire on boosting QE as it waited for the asset purchases unveiled in October to be completed.

Business leaders - such as the British Chambers of Commerce - have called for further QE and are likely to back an increase today.

However, the decision will raise fears over the impact on pension funds as QE can fuel inflation which would spell more gloom for savers who have already seen the value of their pots significantly eroded by the high cost of living and low interest rates.