Bank of England injects further £75bn into economy

 

The governor of the Bank of England, Mervyn King, tells the BBC that quantitative easing will have an effect

The Bank of England has said it will inject a further £75bn into the economy through quantitative easing (QE).

The Bank has already pumped £200bn into the economy by buying assets such as government bonds, in an attempt to boost lending by commercial banks.

But this is the first time it has added to its QE programme since 2009. There have been recent calls for it to step in again to aid the fragile recovery.

The Bank also held interest rates at the record low of 0.5%.

On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.

"In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated," the Bank said in a statement.

"The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term.

"In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the committee judged that it was necessary to inject further monetary stimulus into the economy."

Sterling fell by almost two cents after the announcement to $1.5280, its lowest since late July 2010.

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The CBI and the British Chambers of Commerce (BCC) business groups welcomed the Bank's move to expand the QE programme to £275bn, but said that on its own, its impact would be limited.

"This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest," said Ian McCafferty, the CBI's chief economic adviser.

"Only once the turmoil in the eurozone is resolved will confidence be fully restored."

David Kern, chief economist at the BCC, said: "Higher QE on its own is not enough and we urge the MPC [Monetary Policy Committee] to look at other radical methods.

"There is a strong case for the MPC to help boost bank lending to businesses by immediately raising its purchases of private sector assets."

The manufacturers' organisation, the EEF, said that the Bank's decision to act now, before the third-quarter estimates of GDP and its latest inflation forecast were released, "would indicate that members believed immediate action was warranted in order to head off a deteriorating growth outlook".

However, the National Association of Pension Funds (NAPF) is calling for an urgent meeting with the pensions regulator to discuss ways of protecting UK pension funds from the negative effects of QE.

QE tends to push down long-term bond yields, therefore reducing the return on the investments made by pension schemes.

"Quantitative easing makes it more expensive for employers to provide pensions and will weaken the funding of schemes as their deficits increase," said Joanne Segars, chief executive of the NAPF.

"All this will put additional pressure on employers at a time when they are facing a bleak economic situation."

Complementary actions

Start Quote

If you're not sure of the quality of your ammunition, it's best to fire first. Some will see that as the explanation for the slightly early launch of QE2 from the Bank of England today”

End Quote

The governor of the Bank of England, Mervyn King, wrote to the chancellor earlier on Thursday, setting out the MPC's case for expanding the asset purchasing programme.

In his letter of response, in which he authorised the move, Chancellor George Osborne said: "I agree that an increase in the ceiling would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target."

In his speech to the Conservative Party conference earlier in the week, Mr Osborne said that the Treasury would look into "credit easing" - a way to underwrite loans to small businesses who are struggling to get credit now.

He confirmed this in his letter to Mr King: "Given evidence of continued impairment in the flow of credit to some parts of the real economy, notably small and medium-sized businesses, the Treasury is exploring further policy actions. Such interventions should complement the MPC's asset purchases."

 

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  • rate this
    0

    Comment number 195.

    @139 GMAWR1978:

    How did you get £200k mortgage/debt? You must have been making good money somewhere down the line...so unless you have lost your job or some other disaster has befallen you, stop whining now that you have to pay it off.

  • rate this
    +1

    Comment number 194.

    I thought all the jokers had gone home after the party conferences still out there though making the bankers who broke the country rich again wheres the real solution ????????????

  • rate this
    +2

    Comment number 193.

    Thanks to the tories your £1 is now worth 95P and all in a matter of seconds.
    Just so their rich mates can carry on the champagne lifestyle.
    We did it before when we had no option but this time its clear its not about protecting britain but ensuring the few have enough to pay the fat cats their bonuses

  • rate this
    +36

    Comment number 192.

    Every man and women in the UK has just donated £1250 to the banks.

    Good here isn't it.

  • rate this
    0

    Comment number 191.

    Sir "Mugabe" King at work again trying to destroy us.

  • rate this
    +1

    Comment number 190.

    Quantitative easing, proof that the Tory policies are failing. There's no disposable income around so all businesses will go under eventually except those we are forced to use i.e. banks, utilities etc...

  • rate this
    +4

    Comment number 189.

    The Company is going bust...
    The accountant says don't worry, we'll get more money and this will keep it going...

    Later...
    The Company is going bust...
    The accountant says don't worry just get more money and this will keep it going...

    Later still...
    The Company is going bust...
    The accountant says don't worry just get more money and this will keep it going...

    ad infinitum.

  • rate this
    +10

    Comment number 188.

    Ask yourself this ... and think about it slowly:

    Who owns the Bank of England?
    Who owns the Federal Reserve Bank in the US?
    Who owns your arse?

    The people (nameless) behind the control of inflation, interest rates, panic on the markets are faceless.

    We are being sold down the river by Government using OUR money to support rogues.

    There are none so blind as those that cannot see.

  • rate this
    0

    Comment number 187.

    Will the extra round of QE help small and medium businesses? No.What is stopping SMEs expanding is the myriad of red tape and bear traps surrounding employment law now. It has got worse under the Tory/Lib Dems. Until that is redressed unemployment figures will remain high and rising. I shake my head in despair for the young trying to enter the work market nowadays. I don't envy them.

  • rate this
    -1

    Comment number 186.

    I WORK HARD FOR A LIVING AND SAVE AS MUCH AS POSSIBLE - FOR WHAT - I WOULD LIKE A NEW CAR-ICAN PAY CASH FOR IT- NO! NOT WITH VAT AT 20% I AM BUYING NOTHING - SO WHATS THE POINT OF WORKING!-ALL Q. E. WILL DO IS ERODE THE VALUE OF MY HARD EARNED CASH-GET REAL YOU WANT PEOPLE WHO CAN AFFORD TO SPEND- GIVE THEM AN INCENTIVE

  • rate this
    +3

    Comment number 185.

    I just bought 150 trillion Zimbabwean dollars from ebay for around £4. The currency was abandoned in 2009 because of super hyperinflation. If we start to see hyperinflation, perhaps we will head in the same direction.... one can only wish. Giving the money to the public would give everyone around £1200 (75bn/63mn approx).

    Hit the reset button, level the balance sheets to zero and start again.

  • rate this
    0

    Comment number 184.

    Looking at the way the pound is dropping... We will need to start printing 100 and 200 pound notes so you can buy a beer....... Remember the DM post 1945 and the Lira more recently...

  • rate this
    0

    Comment number 183.

    something I read as a joke email back in 2007 - instead of QE for the banks, why not QE for individuals? Obviously practicalities to be worked out, but paying off a few million or billion of mortgages gives the banks money and I for one would spend more in shops if I wasnt paying 7 or 800 per month in a mortgage

  • rate this
    +11

    Comment number 182.

    50.tomhare
    Osborne today: QE is 'appropriate tool'.
    On 09.01.09: "QE is the last resort of desperate governments when all other policies have failed".

    Exactly - it just goes to show how desperate the Tories must be feeling now.

  • rate this
    0

    Comment number 181.

    158.Danno
    your tactic of finger pointing and witch hunting has been superfluous with making serious changes in this country since the medeival

    keep it up

  • rate this
    +2

    Comment number 180.

    #116 I couldn't agree more. Those with wealth are have collected their winnings from the table and the government are continuing to ignore that its us the British public who have to dip into our pocket to rescue the situation

  • rate this
    +111

    Comment number 179.

    So the big idea is to give even more money to the banks. Then what? Sit with fingers crossed that this will get the economy moving? Think not. Money to the banks will just add to there funds. Government has said banks must build up their funds. Just give the money to the people to spend. £75 billion divided between us and we will spend our way out of the crisis. Thats growth.

  • rate this
    +2

    Comment number 178.

    Well we have got to keep the wealthy rich or this would be really bad for the Tory party.
    In New York they are protesting against the increasing political power of the corporations and the way the banks and politicians are passing laws to make the poor , poorer. I for one am one of the 99% and think we should do the same here, lets be honest it is the system at fault not the people.MoveOn.org

  • rate this
    0

    Comment number 177.

    @121.simonthepieman.
    "Inflation could be a good thing. It forces salaries up which in turn helps people reduce their private debt plus the real term value of UK debt goes down"

    If you saw your life-savings being eroded by inflation, with nowhere to make good due to the low BOE interest rate, I think you would have a different opinion.
    " Never put your trust in government nor its minions!"

  • rate this
    +11

    Comment number 176.

    I am so glad I live in a democracy where I can have a say in the policies of my government. I can sleep easy at night knowing that the wishes of the majority will be heard. I would hate to live under the rule of a government full of arrogant self serving idealists funded in large part by the financial elite. I used to wonder how people in the third world could sit by as their wealth was plundered.

 

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