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Bank of England to pump extra £ 25 billion to the economy

Friday, November 6th 2009 - 16:35 UTC
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The UK economy is taking longer to pick up The UK economy is taking longer to pick up

The Bank of England voted on Thursday to pump an extra £25 billion into the economy amid concerns over getting the UK's faltering recovery out of recession. The quantitative easing (QE) program aimed at increasing the money supply and helping the economy no stands at £ 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 program 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.

“The medium-term prospects for output and inflation continue to be determined by the balance between two opposing sets of forces. On the one hand, there is a considerable stimulus still working through from the substantial easing in monetary and fiscal policy. On the other hand, the need for banks to continue the process of balance sheet repair is likely to limit the availability of credit. And high levels of debt will weigh on spending”.

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. That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling.

Categories: Economy, International.

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