UK: Bank of England injects a further �50bn to boost economy
A FURTHER �50billion was injected into the economy by the Bank of England today as the UK struggles to pull out of its double-dip recession and the eurozone debt crisis intensifies.
The bank’s Monetary Policy Committee (MPC) voted to increase the quantitative easing (QE) programme - effectively printing more cash - from �325billion to �375billion despite the risks it poses to the country’s inflation rate.
Meanwhile, it held interest rates at a record low of 0.5%.
The boost comes amid signs the economy deteriorated in June as industry surveys showed that the construction sector went into reverse and the powerhouse services sector suffered its worst performance for eight months.
Most economists think gross domestic product - a broad measure for the total economy - fell slightly in the second quarter of 2012, following declines of 0.4% and 0.3% in the previous two quarters, as the eurozone debt crisis gathers pace.
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The move will draw criticism from pensioners’ groups, who have blamed the adverse effect of money-printing for a “meltdown” in annuity rates in recent years.
The bank’s action also hit the value of the pound against the US dollar and Japanese yen as the market will be effectively be flooded with extra sterling.
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But the bank said the decision to pump more money into the economy came as UK output had barely grown for a year and a half amid signs its main export markets are slowing.
It said: “Business indicators point to a continuation of that weakness in the near term, both at home and abroad.”
The bank added: “Concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here.”
However, it said inflation, which fell to 2.8% in May, should continue to ease in the medium-term and its stimulus measures should help sustain a gradual strengthening in output.
Business leaders said further stimulus would support confidence and welcomed the decision.
Dr Neil Bentley, CBI deputy director-general, said: “This extension of QE should provide a fillip to confidence.”
But James Knightley, economist at ING Bank, said: “We continue to have doubts over how successful extra QE will be, but seeing as the BoE has few other options we expect them to stick with it.”