Bank of England to reveal insights into downturn this week

The Bank’s Monetary Policy Committee (MPC) is expected to hold firm with its forecasts for growth and inflation as economic indicators reveal a recovery on a knife edge.

While forecasts from the likes of think-tank Niesr suggest the economy will shrink this year and official figures revealed a 0.2 per cent contraction in the final quarter of last year, industry surveys for January have offered some hope for the outlook.

However, the Bank once again flagged the potential threat the eurozone debt crisis poses to the UK recovery as it justified its decision to pump an additional £50bn into its quantitative easing programme on Thursday.

In its last quarterly report in November, it forecast gross domestic product (GDP) to grow by no more than one per cent in both 2011 and 2012 and inflation to hit the Government’s two per cent target in the second half of this year before falling to as low as around 1.3 per cent in 2013.

Chris Williamson, chief economist at financial services information firm Markit, said the inflation and growth forecasts are “likely to be less gloomy than in November due to the better than expected data flow in recent weeks”.

The MPC last week voted to increase the quantitative easing (QE) programme – effectively printing more cash – from £275bn to £325bn as the UK battles to stave off another recession. The Bank said that while business surveys “painted a more positive picture”, the pace of expansion in the eurozone had slowed and concerns remained about the region’s debt levels. The Bank said that tight credit conditions and the Government’s austerity measures present headwinds.