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Bank of England stops easing as inflation worries weigh

Pedestrians pass The Bank of England in the City of London February 14, 2012.

© Olivia Harris / Reuters/Reuters

The Bank of England voted not to give Britain's struggling economy another cash injection on Thursday as concerns over stubbornly high inflation outweigh the risk of a prolonged recession and renew dangers from the euro zone debt crisis.

Ending its program of quantitative easing, or QE, may make life more difficult for Britain's Conservative-led ruling coalition, which was battered in local elections last week and relies on loose monetary policy to soften the pain of austerity measures aimed at cutting the country's huge public borrowing.

But after buying £325-billion ($524.6-billion U.S.) of government debt with newly created money, £50-billion of which has been purchased in the last three months, the bank has judged that its policy stance is supportive enough.

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The central bank also left its key interest rate unchanged at a record low 0.5 per cent.

Both decision had been widely expected, though a significant minority of economists still think the central bank may eventually do more QE.

The central bankers based their votes on updated growth and inflation forecasts that Bank of England governor Mervyn King will announce next week.

Policymakers, most prominently BoE deputy governor Paul Tucker, have indicated that inflation may not fall below the Bank's 2 per cent target as soon as forecast. Inflation rose for the first time in six months in March, touching 3.5 per cent, the highest rate among the Group of Seven major advanced economies.

The minutes of the Monetary Policy Committee's (MPC) April meeting showed that inflation worries had become more dominant, and that long-standing quantitative easing advocate Adam Posen had dropped his vote for more QE.

Mr. King has also said that the economy looks set to recover slowly and steadily later this year while inflation is too high.

The economy shrank 0.2 per cent in the first three months of 2012, putting Britain officially back into recession, while previously upbeat business surveys have shown slower growth.

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