Emergency Support For UK Economy Halted

Bank of England policymakers have resisted calls to prop up the UK's struggling economy with more emergency support - and held the base rate of interest for another month.

Members of the Bank's Monetary Policy Committee (MPC) voted not to increase their quantitative easing (QE) stock from £325bn - after injecting £50bn of support in February.

Calls for a further stimulus had been prompted by the worsening crisis in the eurozone and official data last month showing the UK slipped back into recession .

But the MPC said concerns over stubbornly high inflation outweighed the risk of a prolonged recession and chose to end its second programme of QE.

The central bank also decided not to alter the base rate of interest, which has remained unchanged at a historic low of 0.5% since March 2009.

The latest policy announcements follow BoE governor Sir Mervyn King's recent admission that the bank should have done more to try to prevent the 2008 financial crisis.

All five members of the Sky News Money Panel correctly predicted no change to either policy.

RBS UK economist Ross Walker said: "Barring another escalation of financial market strains, the Bank has probably completed its QE purchases."

Which? Money editor James Daley added: "The economy is back in recession, so there's zero chance of an interest rate increase. And it's too soon to consider another round of QE."

But WPP chief executive Sir Martin Sorrell did not rule out further QE later on in the year.

Money Panel members said that although the UK economy was fragile, Office for National Statistics data showing the UK entered recession in the first quarter of 2012 could well be revised to positive growth later on.

Mr Walker said: "The relapse into 'technical recession' on the official statistics feels somewhat exaggerated.

"Most business surveys as well as other data seem consistent with modest economic growth."

Metro Bank co-founder and chairman Anthony Thomson added: "Growth over the course of the year may well be 1% or less but I am confident that it will be growth."

New ONS data published on Thursday showed manufacturing output bounced back more strongly than expected in March, although a steep fall in oil and gas extraction and utilities output pushed wider industrial production down.

Manufacturing activity rose by a monthly 0.9% in March after a shock 1.1% plunge in February, versus forecasts for a rise of 0.5 %.

The rise was driven by chemicals and chemical products, transport equipment, and computer, electronic and optical products, the ONS said.

The Sky panel was also asked for their opinions on boardroom pay following a series of recent protest votes by shareholders .

Sir Martin, who is one of the UK's highest paid executives, warned against "painting all companies with the same brush".

He said: "If we want world-class global companies based in the UK, compensation has to be paid for performance and has to be competitive globally."

Louise George, founder of Peter Popples Popcorn, added: "Boardrooms shouldn't change course provided they deliver return on equity and free cash flow generation to shareholders as ultimately it will be these companies that help stimulate UK growth."

But Mr Daley welcomed the recent stance taken by shareholders.

"Hopefully, the rebellions at Barclays and Aviva will send a message, that it's no longer ok to reward mediocrity or, worse still, failure," he said.

Ahead of Facebook's expected £59bn floatation on the US stock exchange later this month, the Panel members were asked if they would be tempted to invest.

Sir Martin said he planned to buy some shares for his grandchildren and nephew.

"It is a wonderful branding medium, proving that word of mouth recommendation or editorial publicity is a very, very powerful marketing tool," he said.

Mr Walker agreed he would invest "as part of a diversified portfolio strategy" and Mr Daley and Ms George said they would consider it, depending on the final price.

But the answer was a firm no from Mr Thomson.

"At the proposed share price the business would be valued at around 75 times earnings, which is worryingly high for such an unproven business, especially given it just reported a drop in revenues for the past two consecutive quarters," the Metro Bank chairman said.


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