The Bank of England has announced that it will inject £50bn into the UK economy over the next four month as a continuation of its Quantitative Easing (QE) programme.
QE works pumps money into the economy through the purchase of long term bonds by the Bank of England, freeing businesses and banks from long term financial commitments.
This increase of stimulus brings the total QE package to do up to £375m.
The Bank also announced that it will leave UK interest rates unchanged at 0.5 per cent. This week this decision was mirrored in the Eurozone, where the European Central Bank lowered interest rates from 1 per cent to 0.75 per cent.
The decisions by the Bank of England were taking in the Monetary Policy Committee’s (MPC) July meeting today. Bank Governor Sir Mervyn King last week said that he was shocked at the sudden worsening of financial conditions in the past six months. This negative news was mimicked in the statement from the MPC which said that decisions had been taken following the UK economy “barely growing for a year and a half”.
With slowed growth in the export market, caused in part by the eurozone crisis, there are fears that inflation may fall below the target of 2 per cent, having fallen from a consumer price index (CPI) of 5.2 per cent in September to just 2.8 per cent today.
This announcement follows the creation earlier this month of a £100bn-plus scheme to increase bank lending. This scheme comes in two parts: the first provides cheap credit to banks on the condition that they lend to businesses; the second covers banks’ potential short-term liquidity problems.
There are speculations that further measures will be taken to boost the economy through lending and accessibility of credit, however there are growing fears that these measures, which have kept the base rate at a record low for over three years, are causing harm to pensions and other savings.