Fears over the fragility of Britain’s economy were heightened yesterday as Bank of England rate-setters voted to print a further £25 billion to stimulate growth.

The decision by the rate-setting Monetary Policy Committee (MPC) to take the total quantitative easing stimulus to £200 billion came as an influential think-tank said that Britain had failed to emerge from recession in October.

Economists had already been shocked that Britain remained in recession in the three months to September, contracting 0.4 per cent when the forecast had been for growth of 0.2 per cent.

Britain is the only major economy to stay mired in an economic slump.

The National Institute of Economic and Social Research (NIESR) said that output had continued to fall in October, dampening hopes that the economy will return to growth in the final quarter of the year.

The think-tank, which uses economic models similar to those of the Office for National Statistics (ONS), calculated that GDP fell by 0.6 per cent last month.

James Mitchell, research fellow at the NIESR, said: “The monthly numbers are volatile but the data will need to be very strong in November and December if the country is to return to growth as we forecast.

However, we expect things to pick up as consumers bring forward purchases to take advantage of the lower rate of VAT.”

Industrial production figures released yesterday depressed hope that the third-quarter GDP figures may be increased later this month.

Industrial output fell by 0.8 per cent in the three months to September, official data showed, a bigger drop than the 0.7 per cent estimate used by the ONS to calculate the health of the economy.

In a letter to the Chancellor to seek consent to extend the limit for quantitative easing (QE), Mervyn King, Governor of the Bank, said that there was evidence that the economy could be starting to turn around.

However, he indicated that a lack of credit remained a constraint on growth.

Mr King said: “On balance, the committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists.”

He added: “That will continue to bear down on inflation for some time to come.”

Economists said that the MPC’s raising of QE by £25 billion, the smallest rise so far, suggested that it was preparing to call a halt to the scheme.

George Buckley, chief UK economist for Deutsche Bank, said: “It would seem that the Bank is now in ‘wind-down’ mode when it comes to quantitative easing — weaning the economy and the financial markets off their life-support system.”

The decision to raise QE and keep rates on hold at 0.5 per cent had been widely expected. Investors, who had feared a bigger £50 billion rise, initially sent the pound to a two-week high against the dollar at £1.6637.

Analysts expect interest rates to remain pegged at 0.5 per cent for much of next year.

MPs also sounded concern over the economy, warning that an abrupt withdrawal of fiscal stimuli such as a lower rate of VAT and the car scrappage scheme could have disastrous results.

• A committee of MPs should be set up to scrutinise quantitative easing, a centre-right think-tank said.

In a paper for the Centre for Policy Studies, George Trefgarne said the Bank had “thin justification” for its authority to control quantitative easing.

He called for a committee to report on the process and consider an exit strategy.

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