BoE holds steady course as UK stumbles towards growth

Thu Apr 5, 2012 8:27am EDT
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By Sven Egenter and Olesya Dmitracova

LONDON (Reuters) - The Bank of England held back from giving Britain's fragile recovery an extra boost on Thursday, as the economy appears to have avoided falling into recession despite a shock drop in manufacturing output in the first months of 2012.

The economy has not recovered fully from the 2007-2009 recession that left Britons poorer and vulnerable to the euro zone debt crisis, which fuelled a fall in output at the end of last year and raised fears of a new downturn.

A surprise 1 percent dive in manufacturing output in February, announced earlier on Thursday, showed that the economy was still on shaky ground after a series of more upbeat business surveys had indicated that a modest recovery was on track.

Bank of England Governor Mervyn King has warned of a long and arduous road back to economic health, predicting a bumpy ride for most of 2012 as the dangers from the euro debt crisis linger and events such as an extra public holiday for the Queen's Diamond Jubilee distort the course of the economy.

Even a minor technical recession - defined as two consecutive quarters of falling GDP - would be a blow for finance minister George Osborne, who defended his tough austerity plan aimed at erasing a huge deficit in last month's budget.

At its monthly meeting on Thursday, the central bank's Monetary Policy Committee (MPC) left the total of its asset purchases at 325 billion pounds and kept interest rates at their record low of 0.5 percent, a move that had been unanimously expected by analysts polled by Reuters.

"Since the end of 2011, when many were extremely concerned about an economic meltdown in the euro zone, the short-term outlook has improved," said Scott Corfe, economist at economics consultancy CEBR. "For the UK at least, it looks as though a recession this year will be avoided."

The pound, which has risen in recent weeks as the prospects of further monetary easing dwindled, traded lower against the dollar on Thursday as the factory output data weighed.   Continued...

Pedestrians pass The Bank of England in the City of London February 14, 2012. REUTERS/Olivia Harris