Bank to decide on further QE move

The Bank of England will decide on Thursday whether to inject more money into the economy as dismal figures have left Britain on the brink of a triple-dip recession.

This month's verdict from the Monetary Policy Committee (MPC) follows gloomy data on construction and manufacturing activity after March purchasing managers index (PMI) readings came in worse than expected.

Economists said hopes of avoiding a triple dip are now pinned on Britain's dominant services sector after figures this week showed that construction activity fell for the fifth month in a row in March and manufacturers failed to receive an export boost from the weakened pound.

With a PMI report out on Thursday from the services sector ahead of the noon MPC decision, this month's vote is expected to be another close call.

Bank of England Governor Sir Mervyn King is expected to vote once more for further quantitative easing (QE) after minutes of the March meeting showed that members believed the UK faced a 50-50 chance of slipping back into recession in the first quarter.

Sir Mervyn and fellow rate-setters David Miles and Paul Fisher voted for another £25 billion of QE, which would have taken it to £400 billion. But they failed to garner support amid fears over the impact on the pound and experts predict they will remain outvoted again in April, with the MPC most likely to hold QE and keep rates at 0.5% until the economic outlook becomes clearer.

Hopes have been raised that a solid performance from services firms at the start of the year might offset more woes in the construction and manufacturing sectors. The Office for National Statistics said service sector output increased by 0.8% in January on a year earlier and was up 0.3% month on month, despite the snow impact.

The initial estimate of first quarter economic output is released on April 25, but IHS Global Insight economist Howard Archer said the MPC may take action sooner.

He said: "It could even come down to the strength or otherwise of the purchasing managers survey for the dominant services sector in March, which is out on Thursday morning.

"A reasonably decent survey would ease concerns that the economy contracted in the first quarter and would perhaps give the MPC some more breathing space. A poor services survey, coming on top of the largely disappointing manufacturing and construction surveys, would exert significant late pressure on the MPC to give the economy a further helping hand with more QE."

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