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LONDON: The Bank of England on Thursday is 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 (MPC) will leave its key interest rate unchanged at a record-low 0.50 per cent after a two-day meeting that kicks off on Wednesday.
The BoE has so far injected 200 billion pounds (US$320 billion) into the economy under quantitative easing (QE), 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 pounds, and raising it further," said Investec economist Philip Shaw.
But he added: "It is very likely indeed that the QE 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 QE.
"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," 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 QE 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 per cent over the last six quarters - the longest recession since records began in 1955.
Gross domestic product (GDP) 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.
"The massive quantitative easing programme was designed to bring the UK out of the slump and to engineer growth," said investment manager Ben Yearsley at Hargreaves Lansdown stockbrokers.
"I suppose from that point of view it could be viewed as a success, but 200 billion pounds spent to achieve 0.1 per cent growth does not seem value for money to me - although it is impossible to tell how much worse things would have been had the bank not acted quickly."
The Bank of England's key task is to keep annual inflation close to a 2.0-per-cent target.
Official annual inflation in Britain hit 2.9 per cent in December, after just 1.9 per cent in November, partly owing to changes in taxation levels.
But the BoE has said it expects the level to fall back towards 1.0 per cent in late 2010, meaning it could be some while until the central bank thinks about embarking on a policy of interest-rate tightening.
Also at a meeting on Thursday, European Central Bank policymakers will confront mounting eurozone financial tensions in the face of a brewing crisis brought on by Greece's spectacular public deficit and debt.
That the ECB's main interest rate will stay unchanged at a record low of one per cent is considered a done deal for most, if not all, of 2010, analysts said.
Last week, the Federal Reserve moved ever so slightly towards an exit from its extraordinary effort to revive US economic activity, offering a more upbeat outlook.
Concluding a two-day meeting, the Federal Open Market Committee (FOMC) voted to keep the base federal funds rate in a range of zero to 0.25 per cent, where it has been for over a year.
It also reaffirmed that it expects to hold "exceptionally low" rates "for an extended period" to support the economic recovery.
- AFP/sc
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