Bank may be forced to pump in more money as economy founders

Published on Tuesday 31 August 2010 17:21

THE £200 billion effort by the Bank of England to kick-start the economy foundered in July as growth in the money supply ground to a halt, official figures showed yesterday.

The Bank's preferred measure of "broad money" - the widest measurement of the money supply taking in bank and building society deposits and cash - was flat during the month, despite its programme of pumping money into the economy, a process known as quantitative easing (QE).

The annual growth rate slipped to 1.2 per cent, far below rate-setters' hoped-for double-digit growth in the money supply through QE.

The Bank has kept interest rates at 0.5 per cent, but the figures could pave the way for a further expansion of QE to underpin a fragile recovery.

The latest data also showed a 0.4 per cent fall in lending to private businesses over the month.

Economists warned the housing market may be heading for a double-dip as mortgage lending slumped.

Figures from the Bank showed mortgage advances in July dropped to their fourth lowest level since records began.

Howard Archer, chief economist at IHS Global Insight, said: "The ongoing fall in bank lending to companies is being influenced significantly by low corporate demand for credit in addition to restricted supply."