Bank holds firm as economy stays bleak

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The Bank of England resisted unveiling more emergency measures to support the UK recovery yesterday.

The Bank’s Monetary Policy Committee (MPC) maintained interest rates at the record low of 0.5 per cent and held its quantitative easing (QE) stock at £375bn.

The no-change decision comes after official figures revealed the economy grew at a bigger-than-expected 1 per cent between July and September, ending the double-dip recession.

However, the move is likely to fuel expectations that the Bank will no longer resort to QE as a policy tool following hints from both its governor and deputy governor, Sir Mervyn King and Paul Tucker, that its impact is reaching its limit.

Minutes from the October meeting of the Bank’s Monetary Policy Committee (MPC) suggested members were divided over the benefits of pumping more emergency cash into the economy.

The documents also revealed some members had questioned the impact that further QE – also known as money printing – would have on the broader economy.

The decision is likely to have been a close call for the nine-strong panel after October’s run of weak purchasing managers’ surveys for the services, manufacturing and construction sectors.

The surveys gave credence to expert warnings that the underlying health of the economy is much bleaker than the 1 per cent growth in the third quarter suggests.

An encouraging start to the Bank’s Funding for Lending scheme may have also tipped the balance away from further asset purchases this month with 30 groups, including the five largest banks in the UK, signing up to the £80bn initiative.

Funding costs have dropped one percentage point, the Bank said, while the number of loans approved for house purchase rose by 2,103 to 50,024 in September.

Consumer prices index inflation has also eased and, at 2.2 per cent in September, is near the Government’s 2 per cent target.