Crunch call for bank chiefs as money print vote looms
The Bank of England will attempt to strike a delicate balancing act this week as rate-setters pick their way through the twin threats of rising inflation and sliding growth.
Its Monetary Policy Committee sanctioned an extra £50bn in quantitative easing to help spur on the recovery in February. But the current money-printing programme is coming to a close and the Bank must decide whether to extend its efforts after the UK fell back into recession.
The vote also comes in what could be a turbulent week for the eurozone as markets reacted to yesterday's elections in recession-blighted Greece and France, where Nicolas Sarkozy was set to lose his grip on the Elysee Palace.
Until two months ago the City was convinced the MPC would vote for an extra £25bn in QE, although now just five out of 70 economists surveyed believe the Bank will press ahead and vote to print more money on Thursday.
March's surprise rise in the Bank's Consumer Prices Index inflation benchmark to 3.5% - nearly double the 2% target - caught markets off guard, while the recent utterances from the nine-strong committee have been hawkish.
Deputy governor Paul Tucker recently warned that the cost of living could be stuck above 3% well into the second half of this year - keeping up the pressure on strained household budgets - while the MPC dove Adam Posen also switched his vote away from more QE in April.
But set against inflation worries, official figures have condemned the UK to a double-dip - despite doubts at the Bank over the construction numbers. The Office for National Statistics also reported a slowdown in the biggest sector of the economy as services firms managed only an anaemic 0.1% advance in the first quarter - the MPC believes underlying growth is strong and is putting more faith in business surveys.
George Buckley, the chief UK economist at Deutsche Bank, said: "It is a tricky decision. There is a big question over what the ONS are telling us about underlying activity; growth may be revised higher. The evidence is mixed."