LONDON, Jan. 16 (Xinhua) -- Figures since the beginning of the year have shown that a recovery in the British economy has already begun but it could be a fragile rebound.
For the Bank of England's Monetary Policy Committee (MPC), too quick a return to higher interest rates from the current historic low of 0.5 percent could have a negative effect on the rebound.
And how will it withdraw itself from the quantitative easing (QE) policy it began last March that has pumped tens of billions of pounds of new money into the economy?
The MPC next meets at the beginning of February to discuss interest rates, currently at 0.5 percent for the 10th month in a row.
Also on the agenda will be the QE policy, whereby the Bank pumps new money into the economy by buying fiscal assets on the market from financial institutions and so provides those institutions with money which they can then, in theory, use to fund borrowers and particularly business investment.
It's never been tried before in Britain - it is as Professor George Kapetanios, a macroeconomist and head of the economics department at Queen Mary University of London, said "brand new."
Kapetanios thinks there is little likelihood of a rise in interest rates in the very short term, or a drastic and sudden change in QE policy.
"I still do not think that the recession is over. The National Institute of Economic and Social Research has said that the recession ended in the last quarter of 2009 but more evidence is needed," Kapetanios told Xinhua.
Kapetanios predicted the MPC was unlikely to raise interest rates next month or indeed March, because the strength of evidence indicating a sustained return to growth was not yet evident.
"I think they will wait for official figures on the state of the economy which come out in March," said Kapetanios.
Kapetanios's view is that the MPC will seek an exit strategy from QE, as the recession ends and the economy moves back into growth, gradually and with care.
In his view, it is likely that policies of fiscal stringency and monetary looseness will prevail in Britain in the medium term.
The Office for National Statistics said industrial output rose 0.4 percent in November helped by a jump in oil and gas extraction after repair work finished, a better performance than economists had predicted.
But at the same time, manufacturing output showed zero growth for a second month running.
At present, there are good economic statistics and there are disappointing messages coming from the market place and from producers, all pretty much at the same time.
For many economists it is clear that Britain is at a turning point, but where will it turn? The future is not crystal clear.
Iain Begg, professor at the London School of Economics, told Xinhua that over the next three months it would be possible to give a more convincing answer to what would happen to interest rates and when. "Right now, there isn't enough evidence to make a firm prediction."
"Everybody thinks we turned the corner but the surprise was that the third quarter GDP figures for 2009 were still negative soI wouldn't rule out a nasty surprise, but equally I wouldn't rule out a positive surprise."
For Begg, it seems probable that there will be "no change in interest rates (in February) but probably not any increase in QE either."
The MPC could be looking at its model and saying it doesn't really need much more monetary stimulus and that it might be time for the chancellor of the exchequer to cut the public sector borrowing requirement, said Begg.
He added he would be surprised if interest rates were significantly on the agenda before the middle of the year. What might be on the agenda is quite how QE is unwound.
What happens with interest rates is vital for business too.
The Confederation of British Industry (CBI), which represents employers who make up a third of the private economy, is telling its members it expects interest rates to go up later this year, possibly in the second quarter.
The CBI also expects QE to wind down. The CBI's Lai Wah Co expected the Bank to raise interest rates first without making a big change in the QE program now.
"In our latest forecast we predicted that interest rates would start to rise in the second quarter," Co said. "In terms of an exit strategy the Bank will not be mirroring the policy measures it took on entering the recession, in that then it acted aggressively on interest rates first and then introduced the assets program."
Co said that in terms of unwinding the assets purchases the Bank has a lot of options. It does not have to sell the assets back into the market, but could simply just stop the program and sit on the stock of assets. The Bank could wait for the assets to mature naturally without selling them back.
The CBI says the British economy has exited the recession in the last quarter of 2009 and growth will be sustained into 2011.
"The recovery will be fragile and slow...growth will slow into this year simply because some of the drivers of growth in late last year were temporary measures like the car scrap page scheme," Co said.
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