Further cash injection for economy set to be delayed

The central bank, headed by governor Mervyn King, announced plans in October to buy £75bn of gilts over four months, building on the previous £200bn round of quantitative easing.

Analysts have little doubt the Bank will expand that again soon, though not on Thursday when its Monetary Policy Committee members conclude their monthly meeting.

Howard Archer, senior economist at IHS Global Insight, said: “The December meeting of the Bank of England’s Monetary Policy Committee is unlikely to result in any early Christmas presents for the needy UK economy.”

He added he expected the Bank to extend its asset-purchasing programme by £100bn in the first half of 2012, taking the total up to £375bn.

Earlier this week, the Organisation for Economic Cooperation and Development warned that Britain will slip into a modest recession early next year. Likewise, the Government said the economy would stagnate until mid-2012 and could easily fall back into recession.

More bad news came from a purchasing managers’ survey showing that British manufacturing sector shrank for a second successive month in November and at its fastest pace since June 2009.

Much of that contraction was caused by weak demand globally and especially in the crisis-ridden euro zone, which absorbs half of all British goods exports.

However, a number of concerns will stop the MPC from injecting more freshly-printed money into the economy or cutting interest rates from their record low of 0.5 per cent this month.

Minutes of the Bank’s November 9-10 policy meeting revealed that policymakers saw no case for increasing monetary stimulus before February, despite a rise in the chances of a worst-case outcome for the euro zone crisis.

Brian Hilliard, economist at Societe Generale, said: “It’s most likely that they will take the decision in January or, even more likely, February.

“Most likely, the short-term economic indicators will have got worse. They can then expand the programme at that time, so there’ll be no hiatus.”

The MPC, charged with keeping price rises under control, will also want to see whether their forecasts for a marked fall in inflation from January prove true before embarking on more, potentially inflationary, quantitative easing.

MPC member Martin Weale said recently: “If we... run the risk of taking further chances with our credibility – rather than waiting to see that inflation does actually drop down sharply – then I can see a strong case for saying that we ought to wait and see.”