Bank of England pumps further £50bn into UK economy
The Bank of England held interest rates at 0.5 per cent
THE Bank of England injected a further £50 billion into the economy on Thursday in another desperate effort to keep the United Kingdom out of recession.
The Bank’s Monetary Policy Committee (MPC) voted to increase the quantitative easing (QE) programme – effectively printing more cash – from £275 billion to £325 billion despite the risks it poses to the country’s inflation rate. Meanwhile, it held interest rates at a record low of 0.5 per cent.
The move will draw criticism from pensioners’ groups who have warned that further QE could leave more than a million pensioners “permanently poorer for the rest of their lives” because of the adverse effect money printing has on annuity rates. But business leaders said further stimulus would “support confidence” and welcomed the decision.
The boost comes amid mixed signs for the economy as surprisingly upbeat industry surveys for January conflicted with a downgraded growth forecast from think-tank Niesr, while economists warned of the potentially damaging impact of recent extreme weather.
In a letter authorising the boost, Chancellor George Osborne said he agreed that an increase in the asset purchase ceiling would “provide the MPC with the scope to meet its inflation target”.
Annuity investors have seen rates plummet in recent years, as pensioners have faced a “perfect storm” of high living costs and low returns on their savings.
QE makes it cheaper for companies to borrow by pushing down the yield on government bonds, but annuity incomes are also based on these yields, meaning new pensioners see their incomes reduced.
The policy also has an impact on inflation, meaning pensioners can face higher living costs.
Ros Altmann, director-general of Saga, said the “short-term stimulus” of QE has “very dangerous long-term consequences”.
She said: “Around half a million annuities are sold each year and, since 2008, annuity rates have fallen by about 25 per cent, most of which is due to the effect of QE.
“That means over a million pensioners will be permanently poorer for the rest of their lives, as they have bought an annuity at rates that have been artificially depressed by the Bank of England.”
But the move was welcomed by David Kern, chief economist at the British Chambers of Commerce (BCC).
He 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.”
TUC general secretary Brendan Barber said the decision was the “right thing to do, given the weak state of our economy”.
He added: “But more needs to be done to ensure that this latest injection of cash actually reaches the businesses that need it.”
The closely-watched Markit/CIPS surveys showed that the manufacturing sector returned to growth in January, while the powerhouse services sector saw a record leap in optimism.
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Comments
There are 11 comments to this article
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Gorgierules
Friday, February 10, 2012 at 08:05 AMThis should about cover the City of London's Bonus Season, nice work lads!
Family guy
Friday, February 10, 2012 at 07:49 AMQE is fine as long as the new pound created is set to work. We have to ensure that money is used properly and not used to bankroll hedge funds or the likes. I'm no expert so what does one do to ensure the new pound works hard for the economy? Pay off debts? Increase capital expenditure? Loan it out?
Hector the Lessor
Friday, February 10, 2012 at 07:31 AMWell back in the late seventies when you should have gone for an independent government. You are now in 2012 and the situation has changed considerably. You actually need a vote to achieve Independence. I would forget it. The time is past and you are all locked into London Establishment's way of life. It is too late, you have too many long established debts, you have no way of clearing them under London control. My Granny is dead, she was Scottish and knew what she wanted for the country. You guys do not. Forget Alex Salmond and the desire to do your own thing. you know it means nothing to your lifestyle. Well providing you are an expat.
antiparasite
Friday, February 10, 2012 at 02:11 AMMore money from thin air? Did they print the interest that'll be charged on this money that was just created?... Do the SNP still want these inbred crooks in charge of a 'free' Scotland??
Vote 'NO'
Friday, February 10, 2012 at 12:26 AMMaybe out of principle, or to help the nation out, the SNP will refuse to take any handout from "busted flush Britain"?
Huntly Loon
Friday, February 10, 2012 at 12:20 AMVote NO trying a cheap shot against Swinney when the shots need to be directed at the economic wisdom of printing money a la Zimbabwe or the Weimar republic. All we are doing is printing inflation. When the Credit Agencies look at these tactics will they continue to give us AAA ratings. After all we won't be repaying our creditors in infaltion proof money. If I was Swinney I would be wary of using Sterling in an independent Scotland, not because it does not make trade between England and Scotland easier, but because who would the B of E be providing the future quantitative easing for? I am begining to think Sterling will become as toxic as the euro at this rate. It might be wiser to have a Scots Pound at this rate. And the Unionists were worried that it would be an independent Scotland which would be economically unstable.
Vote 'NO'
Thursday, February 9, 2012 at 10:13 PMHow much is that chancer Swinney putting into the Scottish economy? BoE really put a nail in his budget's coffin, huh?
Simonsaid
Thursday, February 9, 2012 at 09:38 PMWillie Boy- What a busted flush Britain is, but at least it can afford a decade of war, and the chance for another go with the South American contries who all side with Argentina. ======================================================== Behave yersel Wullie your lights wid be oot by this time if the Yanks wur no plankin their bums in Saudi and environs. Aye, the Iranian Ayatollahs wid be deciding who wis and who wisnae getting oiled-up and a dinnae think crusaders like us wid be first served. And folk like yersel tend tae forget thit hud we no disappeared Saddam then him and Am-an-eejit-dad wid be gon at it hammer and tongs making Saddam’s torchin o Kuwait’s oil wells seem like a pyrotechnic damp squib display.
Willie Boy
Thursday, February 9, 2012 at 07:02 PMThe pound in ones pocket will soon be worthless with all this money printing. What a busted flush Britain is, but at least it can afford a decade of war, and the chance for another go with the South American contries who all side with Argentina.
Chappit Tatties
Thursday, February 9, 2012 at 05:40 PM#1 IIC You will get your cut right enough!!! You will get a cut in the spending power of your pound, you will get a cut in job opportunities, you will get a cut in value of your house etc, etc, " Quantitative Easing" is just another word for inflation - the financial ill that we have been supposedly fighting for years. Now the Tories are encouraging it because it gives them short term relief to their problems!! ( Unfortunately, the Liberals do not know what it means so are incapable of having an opinion on the process!)
Irritatingly Intelligent Chauvinist
Thursday, February 9, 2012 at 04:14 PMThat's great news...where do I go to get my cut?
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