The Bank of England is expected to freeze its £325bn stimulus programme, signalling it is more concerned about high inflation than Britain's return to recession.
Economists said it would be a close call but most expect the Bank's Monetary Policy Committee to say on Thursday that it will not extend quantitative easing, despite a shrinking economy in the first quarter and weak outlook.
The May policy meeting is crucial, because by then the Bank will have completed its latest round of bond purchases, after it voted for a £50bn increase to £325bn in February.
The MPC will also have access to the latest Bank forecasts for growth and inflation, produced ahead of the next quarterly Inflation Report on May 16.
The committee's dilemma will be tougher than usual this month, because initial data for the second quarter have been weaker-than-expected, while inflation remains stubbornly high.
The Consumer Prices Index is currently at 3.5pc, well above the official 2pc inflation target, and higher than the Bank was expecting in its February forecasts.It will undoubtedly be forced to revise higher its inflation forecasts in the May Report, which would make the prospect of more QE, which is potentially inflationary, less likely.
However, it is also likely to revise down its growth forecasts. Vicky Redwood, chief UK economist at Capital Economics, said: "For now, we think that the MPC will put more weight on the sticky inflation figures. Accordingly, we expect the MPC to pause.
Nonetheless, it will be a closer-run decision than looked likely a few weeks ago." David Miles was the sole member of the nine-strong committee in favour of more QE last month, voting for a £25bn extension of the scheme, which was first introduced by the Bank in March 2009.
Adam Posen, previously considered the member most in favour of looser monetary policy, dropped his call for more stimulus last month. In the minutes of that meeting, MPC members noted that the underlying economy was probably in better shape than official data suggested.
However, some economists are forecasting a QE expansion on Thursday.
Philip Shaw, economist at Investec, expects the MPC to announce a further £25bn of bond purchases, emphasising a weak outlook for growth.
"While we recognise that the outcome of the meeting is one of the most uncertain for some time, our central expectation remains that the MPC will sanction more QE," he said. "It is entirely feasible that some MPC members are fretting about 'sticky' price pressures.
"However, the way in which events over the past month have panned out suggest that these considerations will be overtaken by the more subdued macro picture.
"That would leave the MPC in a good position to end the latest round of QE in August if things do improve, or to continue its programme should economic conditions deteriorate further."
Economists expect interest rates to stay on hold at the all-time low of 0.5pc until well into 2013.
telegraph.co.uk
Economists said it would be a close call but most expect the Bank's Monetary Policy Committee to say on Thursday that it will not extend quantitative easing, despite a shrinking economy in the first quarter and weak outlook.
The May policy meeting is crucial, because by then the Bank will have completed its latest round of bond purchases, after it voted for a £50bn increase to £325bn in February.
The MPC will also have access to the latest Bank forecasts for growth and inflation, produced ahead of the next quarterly Inflation Report on May 16.
The committee's dilemma will be tougher than usual this month, because initial data for the second quarter have been weaker-than-expected, while inflation remains stubbornly high.
The Consumer Prices Index is currently at 3.5pc, well above the official 2pc inflation target, and higher than the Bank was expecting in its February forecasts.It will undoubtedly be forced to revise higher its inflation forecasts in the May Report, which would make the prospect of more QE, which is potentially inflationary, less likely.
However, it is also likely to revise down its growth forecasts. Vicky Redwood, chief UK economist at Capital Economics, said: "For now, we think that the MPC will put more weight on the sticky inflation figures. Accordingly, we expect the MPC to pause.
Nonetheless, it will be a closer-run decision than looked likely a few weeks ago." David Miles was the sole member of the nine-strong committee in favour of more QE last month, voting for a £25bn extension of the scheme, which was first introduced by the Bank in March 2009.
Adam Posen, previously considered the member most in favour of looser monetary policy, dropped his call for more stimulus last month. In the minutes of that meeting, MPC members noted that the underlying economy was probably in better shape than official data suggested.
However, some economists are forecasting a QE expansion on Thursday.
Philip Shaw, economist at Investec, expects the MPC to announce a further £25bn of bond purchases, emphasising a weak outlook for growth.
"While we recognise that the outcome of the meeting is one of the most uncertain for some time, our central expectation remains that the MPC will sanction more QE," he said. "It is entirely feasible that some MPC members are fretting about 'sticky' price pressures.
"However, the way in which events over the past month have panned out suggest that these considerations will be overtaken by the more subdued macro picture.
"That would leave the MPC in a good position to end the latest round of QE in August if things do improve, or to continue its programme should economic conditions deteriorate further."
Economists expect interest rates to stay on hold at the all-time low of 0.5pc until well into 2013.
telegraph.co.uk
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