The Bank of England has pumped an additional £50bn into the economy in a bid to prevent the UK sliding back into recession.
The decision to effectively print a further £50bn in cash by raising the level of quantitative easing (QE) from £275bn to £325bn was forecast by many economists, despite the danger of accelerating the country’s inflation rate.
Interest rates have been held at the record low level of 0.5 per cent by the Bank’s Monterary Policy Committee (MPC).
Business leaders have welcomed the decision for further stimulus which they say will “support confidence”, but pensioners’ groups are unlikely to be pleased. They have warned it could leave more than a million pensioners “permanently poorer for the rest of their lives” because of the negative effect money-printing has on annuity rates.
The Bank’s move to boost QE comes amid mixed signs for the economy. Some economists have warned the recent inclement weather could weigh down on the economy, while the think-tank NIESR has downgraded its growth forecast for the economy. But industry surveys for January have delivered better-than-expected figures.
- Katie Price, aka Jordan, starts tweeting about QE, China’s monetary policy and the eurozone debt crisis
- Andrew Sentance, Alistair Darling and more explain the effects of QE
In justifying its decision, the Bank acknowledged that business surveys had “painted a more positive picture” about the UK’s economy, but pointed out the UK’s main export market, the eurozone, has slowed and “concerns remain” about its debt levels.
Inflation fell to 4.2 per cent in December and the Bank expects it to drop sharply in the near term, but headwinds still exist in the form of tight credit conditions and the government’s austerity programme.
The Bank said the £50bn increase would take three months to be fully implemented.
Chancellor George Osborne, in a letter authorising the increase in QE, said he agreed that a rise in the asset purchase ceiling would “provide the MPC with the scope to meet its inflation target”.
British Chambers of Commerce chief economist David Kern said: “Although the benefits are not immediately obvious to the business community, quantitative easing plays a key role in strengthening the financial system and stabilising the wider economy.”
The economy shrank by 0.2 per cent in the last quarter of 2011, heightening fears the UK could slip into another recession, which is defined as two consecutive quarters of negative growth.
- Register for our free newsletter and you could win Wimbledon Centre Court tickets