Belfast Telegraph

Friday 19 December 2014

Bank will provide an extra £50bn to revive the economy

The Bank of England said it would pump an extra £50bn into the economy as it accelerated its programme to kick-start growth with injections of new money.

Rate-setters also held interest rates at 0.5% yesterday, but warned the world “remains in deep recession” as they stepped up their programme of quantitative easing (QE) — effectively printing money.

The move raises the total to £125bn as policymakers turn to more radical measures to ease credit conditions in the economy after cutting rates close to zero.

The timing of the move — with one month still to go for the original £75bn scheme — came as a surprise to many analysts who had forecast no update on the strategy until at least next month.

The pound lost ground against both the euro and the dollar following the announcement from the bank’s Monetary Policy Committee (MPC).

The committee had much to chew over at its two-day meeting including last month’s shock figures showing a 1.9% first quarter dive in GDP. The UK also entered its first period of deflation in almost 50 years in March as the Retail Prices Index (RPI) measure of inflation fell to minus 0.4%.

Philip Shaw of Investec Securities said: “It may be that the MPC has been spooked by some of the poor backward-looking data that has been released over the past month or so.”

Chancellor Alistair Darling has given the bank permission to spend a total of £150bn in the QE programme and it has spent £53.7bn so far on assets including Government and corporate debt.

Both rates and QE are designed to keep inflation under control and the MPC will have made yesterday’s decision in the light of the bank’s inflation report, due to be published on Wednesday.

The bank said there were some “promising signs that the pace of decline has begun to moderate”, but warned that extra capacity in the economy has increased and would put more downward pressure on inflation.

James Knightley, an economist at ING, said the move was a surprise given the market was expecting a formal expansion of the scheme in June.

He added it was too early to judge the effectiveness of the asset purchase programme and noted money supply had actually decreased in March.

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