The Bank of England held fire on both interest rates and quantitative easing on Thursday as it paused to assess the impact of the massive stimulus it has already injected into the economy.

There was little reaction from financial markets which expect no change in monetary policy until much later this year as the central bank waits for a clearer recovery from the worst economic downturn since World War 2.

Britain's economy pulled out of recession at the end of last year, but the strength of the upturn remains in doubt at a time when both the government and the banking sector desperately need to get their balance sheets back in shape.

An unchanged position at this point is the right one given the ongoing uncertainty about the strength of the recovery, said Lee Hopley, chief economist at the Engineering Employers Federation.

The Monetary Policy Committee continues to face a mixed economic picture with growth at the end of 2009 helped by stimulus measures that have now all but gone.

It is now a year since the BoE slashed interest rates to 0.5 percent and began buying bonds with newly-created money -- quantitative easing in the jargon -- in an unprecedented attempt to kickstart growth.

The experiment with QE has been regarded as a success by policymakers who say the recession would otherwise have been much deeper.

DOVISH RHETORIC

The BoE has indicated it is prepared to restart its quantitative easing program -- halted at 200 billion pounds last month -- if the economy deteriorates, putting it at odds with many other central banks who are talking more on exit strategies.

Few economists expect such radical action to be called for but most expect the BoE to keep interest rates at 0.5 percent until the fourth quarter of the year at the earliest.

At this stage we take the view that QE will not be expanded this year, but we also doubt that the BoE will be tightening monetary policy anytime soon, said James Knightley, an economist at ING.

Recent economic data has been mixed. A rise in sales tax at the start of the year and snow-related disruption has hit retailers hard, and the housing market has also showed signs of cooling. But consumer confidence has picked up surveys suggest manufacturing and services sectors enjoyed a strong rebound in February.

The upcoming election, expected on May 6, is also clouding the outlook as recent polls have been pointing to a hung parliament -- where no one has an outright majority -- which could make fiscal consolidation harder.

(Editing by Ron Askew)

United kingdom Quantitative easing