THE Bank of England chose to leave monetary policy unchanged yesterday as a raft of upbeat data suggested that the recovery was on track if not fully assured.
The decision was widely expected by the markets given Bank governor Mervyn King’s repeated warnings of an economy bumping along the bottom for some time to come and policymakers’ desire not to rock the boat ahead of the 6 May general election.
The Monetary Policy Committee (MPC) will have been cheered by the latest upward revision to fourth quarter GDP to 0.4 per cent quarterly growth, although stagnation in the eurozone remains an issue.
Britain also appears to have avoided a double-dip. Leading think-tank The National Institute for Economic and Social Research forecast yesterday that GDP grew 0.4 per cent in the quarter to March. Official data will be released on 23 April.
However, the think-tank said that after two years of depression, output is still 5.4 per cent lower than it was in early 2008 and the growth rate is still lower than the trend rate of growth of potential output, so the output gap is still increasing.
But there are signs that output in the UK economy is starting to pick up. Official data released yesterday showed that the hard-hit manufacturing sector saw output bounced back in February. Manufacturing output grew 1.3 per cent on January, more than making up for the one per cent fall seen in the first month of the year.
The wider industrial output measure rose by a more modest one per cent as it was limited by utilities output moderating after a surge in January when people were trying to keep warm in the freezing weather.
Alan Clarke, UK economist at BNP Paribas said that assuming a solid March reading – consistent with the PMI surveys – we are looking at a decent addition to first quarter GDP from industrial production.
With surveys pointing to strong growth in the services sector, analysts are now suggesting 0.5 per cent growth in the first three months.