Bank of England policy-makers will attempt to inject life into Britain's ailing economy on Thursday by announcing additional stimulus through quantitative easing, economists predict.
The Bank's Monetary Policy Committee is expected to say it will spend a further £50bn on asset purchases when it reveals its monthly policy decision at noon.
It would take the total spent on QE to £325bn, since the beginning of the programme in March 2009. The MPC is expected to leave interest rates unchanged at 0.5pc.
Although there will be little explanation of today's decision until the minutes of the meeting are published in a fortnight, the MPC (KOSDAQ: 050540.KQ - news) is likely to justify any increase in QE against a backdrop of falling inflation, a weak economy and uncertain outlook.
There have been a number of upbeat UK economic indicators for January in recent days, but the economy contracted by 0.2pc in the fourth quarter according to official data and the prospect of a return to recession hangs in the balance.
"More QE by the Bank of England is still odds-on, despite overall survey evidence that suggests that the UK economy enjoyed some pick-up in activity in January," said Howard Archer, chief UK economist at IHS Global Insight.
Alan Clarke, economist at Scotiabank, said that positive surveys from the manufacturing, services, and construction sectors had "put the cat amongst the pigeons" ahead of the MPC decision which had been considered a certainty but still forecast a £50bn increase today.
Mr Clarke said: "The Bank of England will feel vindicated that extraordinary monetary policy easing, both here and by the ECB, is having the desired effect on growth. Stronger growth prospects are exactly what the Bank wanted to see, so should not be discouraged by this."
While economists agreed that an expansion of QE was the most likely outcome of today's meeting, some argued a unanimous decision was less likely in light of the stronger than expected January data.
David Miles and Adam Posen, both enthusiastic backers of QE, have made comments suggesting support for more stimulus at this stage is not a certainty among the committee as a whole.
The MPC will have had chance over the course of its two-day meeting to consider the Bank's latest forecasts for growth and inflation, which will be made public when the Bank's February Inflation Report is published next week. They will ponder whether inflation still looks set to fall as sharply as the Bank predicted at the time of the last Inflation Report in November (Stuttgart: A0Z24E - news) .
"The sheer size of the inflation target undershoot that was projected in November means we continue to expect a QE expansion this week there has not been anywhere near enough positive news on the economy to close the projected gap, in our view," said Simon Hayes, economist at Barclays (LSE: BARC.L - news) Capital.
Further quantitative easing (QE) is likely to spell bad news for people set to retire this year as annuity rates plummet, leaving pensioners facing high living costs and low returns on their savings.
Research from financial services company Hargreaves Lansdown found that a 65-year-old man with £100,000 could have bought a level income of £7,855 in July 2008, but someone in the same situation today would only receive an income of £5,923, a drop of just under 25pc.
Dr Ros Altmann, director-general of Saga, said the "short-term stimulus" of QE has "very dangerous long-term consequences".
She (SNP: ^SHEY - news) said: "Buying gilts is not the best way to stimulate growth - it does, of course, help the banks, but it actually has side-effects that directly damage the economic outlook.
"Having more and more poorer pensioners and forcing companies to put money into their pension schemes, rather than their business operations, is a drag on growth, not a boost."
She said tumbling annuity rates mean that "over a million pensioners will be permanently poorer for the rest of their lives, as they have bought an annuity at rates that have been artificially depressed by the Bank of England".
"The impact of QE on pensions and pensioners will lead to lower growth, so we urge the Bank to consider different ways of using newly created money to try to boost the economy."
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