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Bank of England pumps further £50 billion to the economy; total stimulus £375 bn

Thursday, July 5th 2012 - 22:25 UTC
Full article 14 comments
UK economy has “barely grown for a year and a half” UK economy has “barely grown for a year and a half”

The Bank of England has announced on Thursday it will pump a further £50bn into the UK economy over the next four months through its quantitative easing (QE) program to try to help the economy.

QE aims to boost the economy by buying bonds. The latest increase will take the total stimulus to £375bn. The Bank also said it would leave UK interest rates unchanged at a record low of 0.5%.

The Bank of England's Monetary Policy Committee (MPC) has held rates at 0.5% for more than three years.

The Bank said that the UK economy, which is back in recession, had “barely grown for a year and a half”. It added that growth in export markets had also slowed. The Euro zone debt crisis was “weighing on confidence here”, it said.

Without an increase in QE, the Bank said there was a danger that inflation would fall below its target rate of 2%. Inflation as measured by the Consumer Price Index currently stands at 2.8%, down from 5.2% in September last year.

The additional stimulus had been expected following last month's MPC meeting, when four of the nine members voted to increase QE.

Since then, the UK economy has shown no real signs of recovery. A series of surveys released this week suggested that both the manufacturing and construction sectors had contracted in June, while growth in the service sector had slowed to an eight-month low.

Last month, the Bank announced two new stimulus measures. The first of these will provide banks with access to tens of billions of pounds of cheap credit on the basis that they lend this on to businesses.

The second provides banks with access to cash, should they encounter any short-term funding difficulties.

Analysts suggested there could be further stimulus measures on the way as the Bank tries to kick-start the UK economy, which shrank by 0.3% in first three months of this year and by 0.4% in the final quarter of 2011.

”We think it is the next step in a series of measures they are set to undertake over the next 12-18 months”, said Adam Chester at Lloyds.
 

Categories: Economy, International.

Top Comments

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  • ChrisR

    Mervyn King is an academic and until his (political) appointment as Governor of the BofE, by the cnut Brown, he was a university professor (that is a head of department). And it shows. He knows as much about managing an economy in slow down as Brown: and that is sod all.

    Throwing money to 'stimulate' the economy is distorting the market and only Mr. Market will decide what happens to the market.

    Once this added burden of debt is finally stopped the market will collapse to what Mr. Market thinks is the 'correct' level. And taxpayers in the UK such as me and my family will be left with the debt while King retires on his inflation linked pension, paid for by the taxpayers (me and my family again).

    Everything that the USA (with the Fed) and the UK (with the BofE) and the EU (with the ECB) in 'supporting' the market will come to nothing: they are just delaying the inevitable reckoning which WILL happen, it always does.

    Only correctly functioning economies with a thriving export element will grow in the manner they should. Being efficient in production in order to take on other eceonomies is the key. So that is Britain in serious trouble.

    Jul 06th, 2012 - 02:25 pm 0
  • GeoffWard2

    David Stevenson explains what Quantitative Easing is, in Money Week.

    What is quantitative easing?.......
    ”The smart new term for printing money,
    although these days that extra cash isn't produced in the form of newly minted coins and bank notes.
    Rather, quantitative easing (QE) involves electronically expanding a central bank's balance sheet.
    So under its Asset Purchase Facility, similar to that used by the US Federal Reserve, the Bank of England will now buy directly from commercial banks “high-quality assets, broadly comparable to investment grade”.
    These will range from fixed-income sovereign debt and corporate bonds to 'asset-backed' securities built on property loans.
    On the flipside, the Bank will also sell fewer of its own IOUs – gilts – to institutions such as pension funds.
    The two measures combined should release extra liquidity into the economy.”

    I think I understand. Whatever it is, it's not doing my pension much good.

    Jul 06th, 2012 - 05:22 pm 0
  • Guzz

    These “bonds”... Are they those patacones yanqui is constantly fussing about?

    Jul 06th, 2012 - 05:40 pm 0
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