With the job only half done, the Bank of England is right to press on

The Bank's rate-setters pay close attention to Markit's purchasing manager surveys and their recent strength - particularly in the all-important services sector - has raised hopes that the Chancellor may yet avert his dreaded double-dip. But the fundamentals are still dire enough for the MPC to easily justify pushing ahead with more quantitative easing this month and the likelihood is that it won't be the last time the Bank delves into the locker of unconventional monetary policy this year.

Personally, I'm doubtful over the services survey, which showed the sector roaring ahead at its fastest pace since March. It didn't feel like the economy was going gangbusters in January (although my own penurious position during most of the month may have coloured this view). But whether or not the UK does enough to avoid a technical recession in the current quarter will always be more of a political touchstone than relevant in economic terms. It doesn't actually matter whether we get a minus 0.1% or a plus 0.1% in the first quarter. As long as the UK is expanding at below its trend growth rate of 2%-2.5% a year bad things, like rising unemployment, will happen.

Indeed, we're approaching the third anniversary of interest rates at 0.5%, but it's a reasonable bet that they'll be staying there for another three years after that. Why would the MPC even think about doing anything drastic when official number-crunchers tell us that the UK has only recovered about 45% of output lost during the recession during the past 10 quarters, a far more sluggish bounceback than after the last three slumps? Inflation risks are falling away by the month and there is little sign of any significant upsurge in demand, as next week's latest inflation and growth forecasts from the Bank are likely to show us.

Consumers are still working off a decade-long debt binge, even clearing a record £400 million in credit card and unsecured loans in December when they were supposed to be out spending cash. This anchor will weigh on the economy for years to come as the Office for Budget Responsibility forecasts household debts will still stand at 161% of disposable income in 2016.

With shoppers in their current funk, it's unsurprising that businesses are still unwilling to invest. According to Deloitte, the cash holdings of UK non-financial companies stood at £731.4 billion in the third quarter of 2011, the highest on record. We badly need those businesses to start spending some of this money, but the eurozone fiasco is hurting abroad and Osborne's cuts at home are adding to the headaches. In uncharacteristically cowardly fashion, the Institute for Fiscal Studies sat on the fence last week over whether the Chancellor needs to tear up his austerity plans, but its Green Budget warned that the lion's share of the cuts are still to come: just 6% of the cuts in planned current public service spending - the biggest since the Second World War - will have bitten by the end of this financial year.

Assuming that the loosening bias holds at Threadneedle Street this year, the MPC may begin to face practical barriers to its stimulus efforts. It already owns around a quarter of the UK's £1 trillion-plus gilt market, so if it wants to do even more it might have to buy a bigger range of assets such as corporate bonds - something that Governor Sir Mervyn King has previously opposed as picking winners. But expanding the scope of QE in tandem with a move like cutting interest rates on reserves held by the Bank - something floated by the Governor in 2009 - may also encourage banks to pump credit into the economy more widely. Anything's worth a try as the UK's recovery staggers blindly on.