BoE holds steady course as UK stumbles towards growth

The Bank of England held back from giving Britain's fragile recovery an extra boost on Thursday, as the economy appears to have narrowly avoided falling back into recession despite a shock drop in manufacturing output in the first months of 2012.

The National Institute of Economic and Social Research (NIESR), one Britain's leading economic think-tanks, estimated that the economy missed a recession by the smallest possible margin, growing by just 0.1% in the first quarter.

Britain's economy has not recovered fully from the 2007-2009 crisis that left the country poorer and vulnerable to the euro zone's debt problems, which fuelled a fall in output at the end of last year and raised fears of a new downturn.

A surprise 1% dive in UK manufacturing output in February, announced earlier on Thursday, showed that the economy was still on shaky ground after a series of more upbeat business surveys had indicated that a modest recovery was on track.

Bank of England Governor Mervyn King has warned of a long and arduous road back to economic health, predicting a bumpy ride for most of 2012 as the dangers from the euro debt crisis linger and events such as an extra public holiday for the Queen's Diamond Jubilee distort the course of the economy.

Even a minor technical recession – defined as two consecutive quarters of falling GDP – would be a blow for finance minister George Osborne, who defended his tough austerity plan aimed at erasing a huge deficit in last month's budget.

At its monthly meeting on Thursday, the central bank's Monetary Policy Committee (MPC) left the total of its asset purchases at 325 billion pounds and kept interest rates at their record low of 0.5%, a move that had been unanimously expected by analysts polled by Reuters.

The pound hit a fresh 2-1/2 month high against the euro on Thursday as worries about the euro zone debt crisis and rising Spanish borrowing costs outweighed the weak British data.