Central banks may be the only remaining line of defense against a scary-but-remote double-dip recession threat.

The European Central Bank and the Bank of England both hold policy-setting meetings on Thursday that are likely to yield no changes in already record-low interest rates.

I suspect (ECB President Jean-Claude) Trichet would like next week's meeting to be one of the more unexciting meetings, David Scammell, head of UK and European interest rate strategies at Schroders, said on Reuters Insider.

That looks unlikely.

As governments wind down recession-fighting spending and search for budget cuts, monetary policy is left to pick up the slack. This is starting to create some tension.

Disagreement over how soon to raise interest rates is dividing the BoE's governors as inflation remains stubbornly above the central bank's target.

The ECB has no such inflation worries right now but has plenty of other conflict zones: How do you calibrate interest rates and emergency lending programs for a 16-country region with vastly different economic situations?

And then there's the global economy.

Between Europe's debt troubles, China's modest cool-down and the United States' slow-healing job market, double-dip recession talk is spreading around the globe.

Google's trend tracker, which collects data on popular search terms, shows a recent spike in searches for that phrase. Singapore tops the list of countries searching for double dip most often, followed by South Korea, Hong Kong and the United States. (http://www.google.com/trends?q=double+dip)


So far, the economic data suggests a slowdown but no return to recession. Even in Europe, where double-dip fears are most pronounced, factory activity is still growing, albeit at a slower pace. Economists in a June 16 Reuters poll predicted positive economic growth through 2011.

Readings this week on the services sector are likely to show a similar pattern of sluggish but positive growth.

In the United States, the latest source of angst was Friday's June employment report, which showed another month of lackluster hiring by private companies.

We do not believe that we are heading for a double-dip recession, but the data is telling us that the economy entered the second quarter with plenty of momentum and exited it with very little, said Nigel Gault, chief U.S. economist with IHS Global Insight in Lexington, Massachusetts.

Economists have marked down growth forecasts for the second half of the year, but they remain in positive territory.

BMO Capital Markets trimmed its North American growth outlook for the first time in more than a year but does not see a double dip, economist Douglas Porter said.

We don't expect a lot from the economy in the second half of the year, but we also don't expect a full-fledged retreat, he said.

Anything worse than a soft patch would spell trouble for central bankers who have already cut short-term interest rates to near zero and have limited options remaining to counter any serious economic weakness.

The BoE may be in the toughest bind. Inflation was up 3.4 percent on a year-over-year basis in May, well above the central bank's 2 percent target. BoE officials disagree on whether this is fleeting or persistent, but the longer it stays high, the tougher it becomes for the bank to ignore.

The question is whether the potential loss of credibility from keeping policy on hold is a risk worth taking given the fragility of the recovery, said Simon Hayes, an economist with Barclays Capital in London.

(Editing by Dan Grebler)