BUDGET 2011: GDP fall may not be a blip, says Bank of England

Bank of England policymakers fear the decline in the UK economy at the end of last year may not be temporary, it emerged today.

Snow was blamed for the drop of 0.6 per cent in GDP in the last three months of last year.

But with consumers tightening their belts, members of the Bank's monetary policy committee decided to keep interest rates at their historic low of 0.5 per cent while they wait to see how the economy fares in the first quarter of this year, according to minutes of their March meeting.

"While the recent information on the prospects for UK net trade had been encouraging, it was not yet clear that the weakness in output growth seen in the latter part of 2010 would prove temporary, particularly in light of the latest indicators of a further weakening in consumer spending," the MPC said. Three of the nine-strong committee once again backed an interest rate rise.

But the minutes, published the day after official figures revealed inflation hit 4.4 per cent last month, show some other members found the case for a rate rise had strengthened.

The minutes warned there was a risk that inflation would exceed five per cent with oil price rises.