LONDON — The Bank of England kept its benchmark interest rate unchanged on Thursday amid concern that the British economy fell back into recession at the beginning of the year.
The central bank decided to leave its interest rate at the record low of 0.5 percent, where it has been since March 2009. It also held its program of economic stimulus at £375 billion, or about $568 billion.
The governor of the Bank of England, Mervyn A. King, has been pushing this year for more fiscal stimulus to help the economy grow, but has been overruled by other members of the central bank’s interest rate setting committee. Mr. King is to be succeeded in three months by Mark J. Carney, the governor of the Bank of Canada.
The concern is that more stimulus would weigh on the pound, which in turn would fan inflation that is already running at an annual rate of 2.8 percent, above the central bank’s target of 2 percent.
Disappointing manufacturing data, apprehensive consumers and concern about the effects of the crisis in Cyprus mean that many economists still expect the Bank of England to expand its bond-purchasing program this year.
“The economy is going nowhere,” said Vicky Redwood, an economist at Capital Economics in London. “There’s essentially no growth.”
Data released in three weeks is to show whether Britain fell back into a recession in the first quarter, which would be the third recession for the economy in five years. Consumers have curbed spending as the government’s austerity measures, which include spending cuts and tax increases, raise fears that unemployment will increase. Higher costs for electricity during an unusually long winter have further squeezed households.
Many companies are reluctant to spend while bank loans are difficult to come by and while the outlook for demand — especially from the euro zone, Britain’s largest export market — is difficult to predict.
George Osborne, the chancellor of the Exchequer, warned last month when he updated Parliament on the state of the economy that “another bout of economic storms in the euro zone would hit Britain’s economic fortunes hard again.”
In March, the Office for Budget Responsibility halved its forecast for British economic growth to 0.6 percent this year from a previous forecast of 1.2 percent. Growth is expected to rise to 1.8 percent next year, compared with a previous estimate of 2 percent, the office said.
Cold weather was partly to blame for a contraction in the construction industry in March, the fifth consecutive month of declining activity, according to Markit Economics. Disposable income fell 0.1 percent in the fourth quarter from the previous three months, the Office for National Statistics said last month.
Article source: http://www.nytimes.com/2013/04/05/business/global/05iht-pound05.html?partner=rss&emc=rss