LONDON, July 4 — Concern about the pace of economic recovery looks set to persuade the Bank of England to keep interest rates at rock-bottom not just next week but for the rest of the year.

After contracting at the end 2010, the economy has struggled to gather pace. Consumer confidence has tumbled, the labour market is stagnant and the full force of government spending cuts has yet to be felt.

The past few months have seen the collapse of a raft of well-known retail names, including wine seller Oddbins, home improvement firm Focus DIY, and home furnishings retailer Habitat UK. Analysts believe even worse could lie ahead.

While the European Central Bank looks set to raise rates this month — its second move since April — all 70 economists polled by Reuters this week predicted that rates would stay at 0.5 per cent.

Several have pushed back their rate rise forecasts in the past few days. Barclays Capital, which had expected rates to rise in November, is now plumping for May 2012, and National Australia Bank no longer expects rates to rise before September 2012.

“We expect to see no growth in domestic demand for the rest of the year, with all of our forecast growth coming from exports,” said Simon Hayes at Barclays Capital.

Talk of more quantitative easing has even started doing the rounds, though short of a disorderly Greek debt default or similar financial crisis this looks unlikely.

Money markets have already priced out any realistic chance of a rate hike this year and are not fully discounting a rate rise till next May.

The central bank has already kept rates at a record low 0.5 per cent for more than two years — the longest period of interest rate inaction since World War Two.

At 4.5 per cent, inflation is still more than double the central bank’s 2 per cent target, but with commodity prices coming off their highs and the labour market set to remain weak, fears of a wage-price spiral have abated.

Minutes to the central bank’s June meeting observed that “the current weakness of demand growth was likely to persist for longer than previously thought.” And several policymakers — not just arch-dove Adam Posen — considered that more quantitative easing could be warranted in the future if growth remained weak.

The nine-member committee voted 7-2 last month to keep rates on hold, after a 6-3 vote in May. Central bank chief economist Spencer Dale and external member Martin Weale reiterated their call for a quarter point rate rise, while Ben Broadbent — who replaced arch-hawk Andrew Sentence and voted for the first time — joined the majority camp in favour of the status quo.

The central bank announces its rate decision at noon on Thursday, and will publish minutes of its meeting, along with a voting breakdown, two weeks later.

“It now looks highly likely that an interest rate hike will be delayed until 2012,” said Howard Archer at IHS Global Insight. “Indeed, mounting growth concerns mean that if the Bank of England does act this year, it looks increasingly possible that it will be to relax monetary policy.” — Reuters