Bank of England to stay on autopilot until Feb

The Bank of England is unlikely to tamper with its monetary policy settings on Thursday, but growing signs Britain has pulled out of recession mean it is expected to halt its quantitative easing programme next month.

The Bank's Monetary Policy Committee is expected to vote unanimously at 1200 GMT to leave interest rates at 0.5 per cent and to keep its target for asset purchases - the bulk of which have been gilts - at £200bn.

The BoE is on track to complete the last of these gilt purchases just before its February meeting, by which time it will also have fourth-quarter GDP data and new growth and inflation forecasts to hand.

Recent economic newsflow has been encouraging.

Halifax reported British house prices rose one percent in December, bringing their recovery since April to more than nine percent. And the Society of Motor Manufacturers said new car sales rose an annual 38.9 per cent last month, their sixth consecutive monthly rise.

But analysts said the BoE would wait for another month before making any big policy decisions.

"The Monetary Policy Committee is likely to wait for February's inflation report before reviewing its asset purchase programme," said Vicky Redwood at Capital Economics.

Since it exhausted its conventional monetary firepower in March, the MPC has only ever tweaked policy in months that coincide with its quarterly growth and inflation projections February, May, August and November.

Britain has lagged its international peers in coming out of recession, but preliminary GDP figures later this month are expected to show it returned to growth in the final quarter of 2009.

The extent to which the economy will maintain traction over the coming year is the key question.

Surveys suggest both the manufacturing and services sectors are growing at their fastest pace in two years, and Bank of England figures show money supply growth and bank lending both picked up at the end of last year.

But consumer confidence fell in December and analysts warn that headwinds to recovery remain, not least a record government deficit which will require deep cuts to public spending in the coming years.

Such a backdrop has convinced most economists that British interest rates will not rise until the second half of this year at the earliest.

"It's one thing to bring an end to quantitative easing, another to start raising rates," said David Owen, chief European financial economist at Jefferies. "What remains to be seen is how much of the recovery has been led by an upturn in the inventory cycle. Our view is that the BoE will hold rates at 0.5 percent for the whole of the year."