Bank tipped to delay cash boost

Bank of EnglandA vote by Bank of England policymakers on whether to prop up the UK economy with more emergency support looks to be in the balance.

Members of the Bank's Monetary Policy Committee (MPC) will announce at noon on Thursday whether they plan to increase their quantitative easing (QE) stock from £325 billion - three months after injecting £50 billion in February.
Economists said the decision of the nine-member committee was a close call and that more QE by August looked inevitable if they did not vote in favour this month. Interest rates will be kept at a record low of 0.5%.

Pressure for more stimulus measures has intensified amid the recent deepening in the eurozone crisis and after figures showed the UK in a technical recession, with gross domestic product declining 0.2% in the first three months of the year after a 0.3% drop in the final quarter of 2011.

However, minutes of the Bank's last meeting showed a reluctance to increase QE, with arch-dove Adam Posen dropping his call for an extra £25 billion.

Inflation has been stubbornly high, unexpectedly rising in March to 3.5%, despite Bank governor Sir Mervyn King and his colleagues predicting that CPI would fall to the Government's 2% target by the end of the year.

And the accuracy of official data has been called into question after a run of purchasing managers' surveys in the first three months of the year revealed decent growth in the manufacturing, construction and services sectors.

Howard Archer, chief economist at IHS Global Insight, said the MPC decision is likely to go down to the wire but he is leaning towards the view that the committee will hold off from announcing more QE.

He said: "We expect the MPC to hold off from more QE due to its current heightened inflation concerns and a belief that the economy is seeing underlying modest growth despite the reported first-quarter GDP contraction that put the economy officially back into recession.

"However, we expect the MPC to keep the door very much open to more QE should the economy fail to show underlying improvement over the coming months."

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