Bank of England pumps extra £25bn into economy

Published on Thursday 5 November 2009 12:44

RATE-setters elected to pump an extra £25 billion into the economy today amid concerns over getting the UK's faltering recovery out of recession.

The Bank of England

The Bank of England voted to boost its quantitative easing (QE) programme, which is aimed at increasing the money supply and helping the economy, bringing planned spending to a total of 200 billion.

At the end of a two-day meeting, the Monetary Policy Committee (MPC) also chose to keep interest rates at their record low of 0.5%.

The decision will partly appease economists who had called for a hike of up to 50 billion in QE in the wake of disappointing UK figures.

Pressure for steep acceleration of the programme was sparked after a surprise 0.4% decline in the economy between July and September, indicating the UK remained mired in recession, despite news that other countries were beginning to shrug off their downturns.

Major world economies including the US, France and Germany have emerged from recession in recent months, leaving the UK behind and intensifying calls for further action from officials.

Figures showing a 0.9% decline in the Bank's preferred measure of money growth in September also raised uncertainty over whether the current level of QE was sufficient.

In a statement the Bank said: "Households have reduced their spending substantially and business investment has fallen especially sharply.

"GDP continued to fall in the third quarter."

It said there had been a number of indicators on spending and confidence that suggested the UK would see economic activity pick up soon.

"On balance, the committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists," it added.

Stephen Boyle, head of RBS Group economics, said the was no "plan B" on dealing with the UK's economic woes.

"The extension of the Bank's asset purchase scheme today reminds us that the risks of doing too little considerably outweigh the risks of doing too much," he said.

"The UK economy is still in the high dependency unit, but without QE it might have been in intensive care, or worse."