The Bank of England is expected to unleash another multi-billion round of emergency support for the UK economy despite signs that the UK’s financial health may be starting to improve.
The Bank’s Monetary Policy Committee (MPC) is forecast to increase its quantitative easing (QE) programme by £50 billion to £325 billion in a bid to stave off a recession, while it will also hold interest rates at record lows of 0.5%.
Many economists had previously expected the MPC to inject an even greater sum into the economy but surprisingly upbeat industry surveys for January have forced some to revise down their estimates.
The closely watched Markit/CIPS surveys showed that the manufacturing sector returned to growth in January, while the powerhouse services sector saw a record leap in optimism.
Malcolm Barr, an analyst at JP Morgan, had previously forecast an injection of £75 billion but said the “much firmer than expected” data meant he now pencilled in a £50 billion boost instead.
Despite the upbeat data, most analysts also insisted it was still too early to call a recovery after respected thinktank NIESR recently warned that the UK economy would shrink by 0.1% in 2012 amid weak investment and uncertain conditions.
Meanwhile, recent extreme weather has clouded the picture further, with some economists warning the heavy snowfall and icy conditions could hit economic output, as they did at the turn of the year in 2011.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Obviously the longer that the snow and freezing conditions last, the more will be the disruption to economic activity, and the bigger the risk that the first quarter will see further contraction in GDP.”
The economy contracted by 0.2% in the final quarter of 2011, sparking fears that the UK would fall back into another recession – defined as two successive quarters of falls – albeit a much milder one than previously.
The Government and Bank have both placed much of the blame for the UK’s economic difficulties on the troubles in the eurozone, which still have no clear resolution.