Bank of England pump £50bn into economy

Rate-setters have pumped £50bn more into economy to shore up recovery
12 April 2012

The Bank of England today said it will pump an extra £50 billion into the economy in a sign policy-makers are sceptical about evidence of "green shoots".

In a move that took City forecasters by surprise, the Bank expanded its quantitative easing programme from £125 billion to £175 billion. Economists expected an extra £25 billion.

The Bank's monetary policy committee also held interest rates at 0.5 per cent for the sixth month running.

The Bank, led by governor Mervyn King, hopes the low borrowing rates combined with the billions pumped into the nation's banks will drag the country out of recession.

There were good figures from the car and construction industries today, offering some hope. Car sales rose for the first time in 15 months, by 2.4 per cent. Construction orders were up in the second quarter by 18 per cent.

In a statement explaining the surprise move, the Bank said the recession "appears to have been deeper than previously thought".

While the pace of decline has slowed and business surveys suggested the low point in activity was "close at hand", money growth remains weak, the Bank said.

"Though there are signs that credit conditions may have started to ease, lending to business has fallen and spreads on bank loans remain elevated," it added.

The Bank said: "On the one hand, there is a considerable stimulus still working through from the easing in monetary and fiscal policy and the past depreciation of sterling.

"On the other hand, the need for banks to continue repairing their balance sheets is likely to restrict the availability of credit, and past falls in asset prices and high levels of debt may weigh on spending."

It added: "While some recovery in output growth is in prospect, the margin of spare capacity in the economy is likely to continue to grow for some while yet, bearing down on inflation in the medium term."

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