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

    Comment number 175.

    This is a declaration of failure by the Bank of England and British Government. They have no idea what they are doing or which way the economy if facing and can only resort to panic measures like thise. In truth they do not want to face reality. The country is in debt and borrowing more money to pump into QE measure will only compound the problem. Growth can only follow debt reduction.

  • rate this

    Comment number 174.

    "quantitative easing" - a real spin doctor phrase if ever there was one. "Printing money" or "devaluing the currency" would be more accurate. This government is looking more like the Blair years at its highest R.P.M.

  • rate this

    Comment number 173.

    @96. Karl Duvall
    QE is a process whereby a central bank buys assets to not only inflate the prices of these assets but provide lenders with additional money with which to lend. The reason BoE won't just give everyone in the UK £1000 is that money is then lost rather than simply tied up in a medium to long term investment.

  • rate this

    Comment number 172.

    It should be illegal. With inflation at more than double target how can they be worried that we are going to be plunged in to deflation? Surely if they were worried they could wait for inflation to start falling?

    It appears that now, much as in the United States, we are monetizing out debt.

    Question to the central bankers, how do we now differ to Zimbabwe and Germany in the 1920s?

  • rate this

    Comment number 171.

    Oh dear. Do we ever learn? We appear to be on the road to hyper inflation don't we. I think the government should just provide wheelbarrows to all UK citizens in order that they may transport their pound coins to the supermarket in order to buy a loaf of bread

  • rate this

    Comment number 170.

    Is this further £75 billion not part of the £185 billion we gave them not long ago? Fact is until we do what brave yanks are doing and protest at what Wall street is about and protest at what the city is doing we are mere slaves. VICTORY TO THE AMERICAN PROTESTS.

  • rate this

    Comment number 169.

    Here we go again.

    We are told to pay off our credit cards whilst our inept leaders just print another £75bn.

    The people in charge across the world are totally incompetent.

  • rate this

    Comment number 168.

    By pumping in this extra cash does this not devalue are currency, Worst still is America have been doing this as well and have therefore devalued the dollar. Is this not why commodities and prices in the shops keep rising as most things on the commodities market are bought and sold in dollars.

  • rate this

    Comment number 167.

    I would have prefered the BoE to give each man woman and child the £1000. That would give our household £6000 to spend so i might get to heat my house and run my car this winter!

    As it is this will just devalue the pound pushing up my fuel bills!

  • rate this

    Comment number 166.

    Inflation held, money added?

    How does this work?

  • rate this

    Comment number 165.

    How long before this fiat currency becomes worthless?

  • rate this

    Comment number 164.

    We are saved, the pound is up against;

    South African Rand
    Salvadoran Colon
    Venezuela Bolivar Fuerte

    Happy happy days

    I cannot find one of those money printing machine son ebay, anyone know where the BoE got theirs??

  • rate this

    Comment number 163.

    what a good idea, give the banks more money, the bankers will have even bigger bonuses, and we have to pay more tax and the like to pay it back, god there was a bright spark that thought of that,
    If we brought back the gold reserves and could only print money depending on how much gold we have none of this would have happened... top tip, buy gold and don't leave any money in your bank account,..

  • rate this

    Comment number 162.

    OF COURSE IT'LL LEAD TO INFLATION, THATS THE POINT! The government is too heavily indebted to pay its way, and inflation is the only way it can dig itself out of the hole without raising taxes or defaulting. It's a disgrace because it hits those on the breadline hardest. It is GOVERNMENT profligacy that has necesitated this.

  • rate this

    Comment number 161.

    I'm a 'small' business owner.

    I need further capital to ensure our business remains competitive with the possibility of expansion by investing in new machinery & materials. Our accounts are extremely healthy. We have been trading since 1955. The banks refuse to lend.

    Will we get to see any of this £75billion? I doubt it ... We'll contract or stagnate at best ... Possibly worse? Banks care?

  • rate this

    Comment number 160.

    Shouldn't the State just take over the remainder of the RBS and run the bank as a State bank. The state would then be able to lend to those businesses that currently are being deprived of funds from the High Street banks.
    Much cheaper and much better than QE

  • rate this

    Comment number 159.

    If it's bulldog spirit Camoron wants, then perhaps we should rise to his call instead of mocking him?

    RUN ON THE BANKS. Withdraw all your cash TODAY and rip the smiles off the bankers greedy faces.

    Your money is making you NOTHING sitting in the bank and is being robbed through inflation. Stick it under your bed and have the same risks, less the greedy bankers bonuses thrown in your face.

  • Comment number 158.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 157.

    The CBI says this will support confidence. Rubbish! QE debases the currency, most of the money will go on bankers bonuses and abroad on speculative investments. That will raise commodity prices, which will result in higher inflation here in the UK. With higher inflation anyone on a fixed income or without a pay rise will have less to spend, so say hello to a new recession. Sack the MPC now!

  • rate this

    Comment number 156.

    Just checked the markets & the pound has barely budged against the Dollar or Euro so I’d say UK plc just increased its net worth rather successfully while at the same time reducing the real cost of our debt – in case nobody noticed the flip side of inflation is that it reduces the relative cost of debt. So glad that the bitter & doomladen comments here have so little effect in the real world


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