THE Bank of England injected a further £75bn into the economy today in a bid to jump-start the UK’s flagging recovery.
Its Monetary Policy Committee (MPC) voted to boost its quantitative easing (QE) programme – effectively printing more cash – from £200bn to £275bn despite the risks it poses to the country’s inflation rate.
Meanwhile, it maintained interest rates at 0.5%.
The move – the first change to QE since November 2009 – offers the clearest signal yet that the Bank thinks Britain is on the brink of a double-dip recession.
The Bank of England said it boosted QE because “tensions in the world economy threaten the UK recovery” and the slack in the economy is likely to be “greater and more persistent than previously expected”.
The decision was welcomed by business leaders who have called for help to stimulate the economy after figures revealed that Britain suffered a deeper recession and is recovering more slowly than first thought.
A report by the Bank into the effect of QE on the economy previously found that the stimulus measure provided a “significant” benefit to growth and helped GDP increase by around 1.5% and 2%. This was equivalent to dropping interest rates by between 1.5% and 3%, the Bank found.
Ian McCafferty, CBI chief economic adviser, said the Bank had “acted promptly” in the face of risks to the economic outlook.
He said: “This measure will help support confidence, but we need to recognise that its impact on near-term growth prospects is likely to be relatively modest. Only once the turmoil in the eurozone is resolved will confidence be fully restored.”
Economists warned yesterday that a double-dip recession was looking more likely.
Gross domestic product grew 0.1% between April and June, compared with an earlier estimate of 0.2%, while the first quarter was downgraded to 0.4% from 0.5%, the ONS said.
Graeme Leach, chief economist at the Institute of Directors, said: “What did we want? More QE. When did we want it? Now.
“Near zero GDP and money supply growth made a compelling case and the Bank of England was right to launch QE2. It could be argued that the Bank of England was slow to introduce QE the first time, but thankfully it hasn’t made the same mistake twice.”
