Further quantitative easing may be held off

Bank of England`Bank of England policymakers are expected to hold off from any further economy-boosting moves when they gather this week amid mounting recovery hopes.

This month's interest rate meeting comes as experts predict that the UK economy will pull out of its double-dip recession in the third quarter, with bank governor Sir Mervyn King insisting just last week that there are "a few signs" of recovery.
Official figures revealed a second upward revision of gross domestic product in the second quarter, leaving the contraction at a better-than-feared 0.4% between April and June.

Retail figures from the CBI also showed a welcome rise in sales this month in a bounce back after a disappointing August performance, which has further fuelled hopes of a return to growth.

Economists believe the bank's monetary policy committee (MPC) will keep interest rates at their record low of 0.5% and hold back from any further quantitative easing (QE) efforts this month, having already pumped £375 billion into the economy.

Philip Shaw, economist at Investec Securities, is forecasting 0.7% growth in third quarter gross domestic product (GDP) thanks in part to a possible boost from the Olympics. But the underlying picture of the economy will remain subdued and that any third quarter bounce-back may not prevent the bank from launching another £50 billion of QE in November, he said.

"A strong GDP figure would not be representative of the underlying economic environment and the MPC should be able to 'look through' it," said Mr Shaw.

The bank will be watching its funding for lending programme closely to see whether further QE is needed, with early encouraging signs of its scheme to free-up the log-jam in lending. It recently revealed that 13 banks and buildings societies have signed up and that it is seeing tentative signs that credit is being boosted.

There have also been doubts cast over the usefulness of more QE, with the bank's deputy governor Paul Tucker saying that QE may be losing its "bite", and whether printing more money would be worth the risk to inflation.

Consumer prices index inflation has more than halved to 2.5% from 5.2% last September, but is forecast to start rising again by the end of the year, which could make the bank cautious about pushing the button on more QE.
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