Bank of England to stop pumping cash

The Bank of England is today expected to call an end to its radical policy of pumping out new money after Britain narrowly emerged from recession in the fourth quarter of 2009, analysts said.

Most economists also predict that the Central Bank's Monetary Policy Committee will leave its key interest rate unchanged at a record-low 0.50 per cent after a two-day meeting which started yesterday.

The BoE has so far injected £200 billion into the economy under quantitative easing, whereby it creates money by purchasing bonds from commercial institutions.

The radical policy was introduced almost one year ago as the BoE sought to encourage commercial banks to boost lending to businesses and individuals as Britain fell into what turned out to be its worst recession in modern history.

Official data published last week showed that the British economy emerged from recession in the final quarter of last year with growth of just 0.1 per cent, dashing market expectations of a stronger 0.4-per cent expansion.

"The main policy choice (for the BoE) will be between holding the level of quantitative easing at £200 billion, and raising it further," said Investec economist Philip Shaw. "It is very likely indeed that the quantitative easing target will be frozen."

IHS Global Insight economist Howard Archer agreed, but said that extremely weak fourth-quarter growth could persuade some members to call for more quantitative easing.

"We still lean towards the view that the MPC will bring quantitative easing to at least a temporary halt, but the call looks a lot closer now than it did before it was revealed that the economy could only grow by 0.1 per cent quarter-on-quarter in the fourth quarter of 2009," Mr Archer said.

Back in March, the BoE had cut rates to 0.50 per cent, where they have remained ever since, and embarked upon the quantitative easing plan to combat a sharp downturn.

The economy, which is struggling with high unemployment and massive public debt caused by the financial crisis, contracted by six percent over the last six quarters, the longest recession since records began in 1955.

Gross domestic product meanwhile shrank by 4.8 per cent in 2009, which was the biggest-ever annual contraction.

The anaemic fourth-quarter growth data has prompted some analysts to question whether the QE policy has been a success.