The Bank of England decided to leave its interest rate at 0.5 percent, a record low, and also held its program of economic stimulus at £375 billion, or $600 billion.
Some positive data from the manufacturing industry in December had surprised some economists, but many warned nonetheless that Britain’s economy would continue to move at snail’s pace this year as households are reluctant to spend.
“It’s still not looking good,” Vicky Redwood, an economist at Capital Economics, said before the rate announcement. “The underlying picture is still flat.”
The Bank of England governor, Mervyn A. King, had warned in November that the British economy would continue its “zigzag” pattern and that the economic recovery would take some time. Mr. King is to retire from the job in July and will be replaced by Mark Carney, head of the Bank of Canada.
Manufacturing unexpectedly grew at the fastest pace in more than a year in December, helped by domestic demand, which raised hopes among lawmakers that Britain would steer away from a triple-dip recession. But the outlook was soon reversed and an unexpected contraction of the services sector in December, the first time in two years, again raised fears that the country might not be able to stave off another recession.
Britain had emerged from a recession in the third quarter albeit growing slower than previously expected.
Many British consumers are concerned that a 2.7 percent inflation rate, which is above the Bank of England’s own 2 percent target, and the government’s ongoing austerity program would squeeze their disposable income. Consumer confidence fell in December and the British retail Consortium called the holiday sales “underwhelming.”
William Morrison Supermarkets said this week that a decline in sales worsened over the important holiday period and that the result was worse than the company expected. Retailers in Britain are struggling to stay in business as more consumers are postponing purchases and looking for bargains.
HMV, the country’s biggest retailer of CDs and DVDs, has said it will probably breach debt covenants, and Jessops, a photographic equipment retailer, announced on Wednesday it would go into administration after running out of money.