BoE holds interest rate steady

The Bank of England held back from giving Britain's fragile recovery an extra boost today, as the economy appears to have avoided falling into recession despite a shock drop in manufacturing output in the first months of 2012.

At its monthly meeting, the bank's Monetary Policy Committee left the total of its asset purchases at £325 billion and kept interest rates at their record low of 0.5 per cent.

"Since the end of 2011, when many were extremely concerned about an economic meltdown in the euro zone, the short-term outlook has improved," said Scott Corfe, economist at economics consultancy CEBR. "For the UK at least, it looks as though a recession this year will be avoided."

The pound, which has risen in recent weeks as the prospects of further monetary easing dwindled, traded lower against the dollar today as lower than expected factory output data weighed.

Most economists believe the bank will not expand its quantitative easing programme this year, and the recent output figures did little to change that view.

"Recent economic data has been more encouraging, and with oil prices high, there's now less certainty around how far and how fast inflation will fall," said Ian McCafferty from the Confederation of British Industry.

The bank, along with the British government, is forecasting that lower inflation will bring some relief to consumers and allow more consumption.

But a recent jump in oil prices and rising food costs caused by a lack of rain in parts of England raised fears that inflation will not fall towards the Bank's 2 per cent target as fast as policymakers hope.

Economists said Britain should return to growth in the first three months of 2012 as the wider measure of industrial output grew in February thanks to increased energy production. The dominant services sector has also been improving.

Nonetheless, the government predicts growth of just 0.8 per cent this year, only a fraction more than in 2011.

In another encouraging sign that some consumers are confident enough to spend more, new car registrations rose by 1.8 per cent in March.

Reuters