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Bank halts £200bn stimulus scheme Bank halts £200bn stimulus scheme
(20 minutes later)
The Bank of England has decided against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy.The Bank of England has decided against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy.
Under QE, the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.Under QE, the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.
Last week, it revealed it had spent all of the £200bn put aside for QE.Last week, it revealed it had spent all of the £200bn put aside for QE.
The Bank also kept interest rates on hold at a record low 0.5% for the 11th consecutive month.The Bank also kept interest rates on hold at a record low 0.5% for the 11th consecutive month.
'Further purchases'
While halting QE, the Bank said the £200bn already injected into the economy through the programme would "continue to impart a substantial monetary stimulus to the economy for some time to come".While halting QE, the Bank said the £200bn already injected into the economy through the programme would "continue to impart a substantial monetary stimulus to the economy for some time to come".
ANALYSIS By Hugh Pym, chief economics correspondent
The radical policy of money creation - unprecedented in the Bank of England's 300 year history - has been put on hold.
For the first time since it was launched last March, the Bank has used up its war chest of new money and not asked for permission from the chancellor to create more.
It holds out the possibility of reviving the programme, but that comes right at the end of its statement to the markets. Much of that statement is relatively upbeat, pointing to the revival of growth in the economy.
The signs are that, barring a lurch back into recession, this is the end of the money creation. The next challenge will be reversing the policy - in other words draining money back out of the system. That may well be some months off.
But it did not close the door on further spending.But it did not close the door on further spending.
"[The Bank] will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.""[The Bank] will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them."
Analysts said the Bank would prefer not to have to pump any more money into the economy.
"We certainly would not rule further quantitative easing out given the serious headwinds that the recovery still faces, although we suspect that the Bank of England would very much prefer not to go down that road," said Howard Archer at IHS Global Insight.
"Even if this really is the end of quantitative easing, any policy tightening still looks a long way off given that the recovery is likely to remain fragile for some time to come."
Weak growthWeak growth
Analysts had expected rates to remain unchanged. Analysts had also expected interest rates to remain unchanged.
The decision to keep rates on hold comes despite official figures showing that UK consumer prices rose in December by 2.9%, their fastest annual pace for nine months and above the Bank's 2% target.The decision to keep rates on hold comes despite official figures showing that UK consumer prices rose in December by 2.9%, their fastest annual pace for nine months and above the Bank's 2% target.
The Bank said in a statement that it would "continue to monitor the appropriate scale of the asset purchase programme" and further purchases would be made if needed.The Bank said in a statement that it would "continue to monitor the appropriate scale of the asset purchase programme" and further purchases would be made if needed.
Bank Governor Mervyn King warned last month inflation was "likely to rise to over 3% for a while", and could go even higher if energy prices and indirect taxes were to increase further, but added that it "should return to target in the medium term".Bank Governor Mervyn King warned last month inflation was "likely to rise to over 3% for a while", and could go even higher if energy prices and indirect taxes were to increase further, but added that it "should return to target in the medium term".
Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.
For that reason, most analysts expect rates to stay at 0.5% until at least the second half of 2010 for fear of the UK falling back into recession.For that reason, most analysts expect rates to stay at 0.5% until at least the second half of 2010 for fear of the UK falling back into recession.

Quantitative Easing

First, with the permission of the Treasury, the Bank of England creates lots of money. It does this by just crediting its own bank account. It has created £200bn in this way.
The Bank of England then spends the cash, mainly on buying government bonds from other banks, although it has also spent some of it on buying bonds issued by big companies.
The idea is that the banks will take that money and lend it to companies and individuals. They in turn will spend the money on things like expanding their businesses or buying new homes, which boost the economy.
Theoretically, when the economy has recovered, the Bank of England sells the bonds it has bought back to the banks and destroys the cash it receives. That means in the long term there has been no extra cash created.
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Quantitative Easing

First, with the permission of the Treasury, the Bank of England creates lots of money. It does this by just crediting its own bank account. It has created £200bn in this way.
The Bank of England then spends the cash, mainly on buying government bonds from other banks, although it has also spent some of it on buying bonds issued by big companies.
The idea is that the banks will take that money and lend it to companies and individuals. They in turn will spend the money on things like expanding their businesses or buying new homes, which boost the economy.
Theoretically, when the economy has recovered, the Bank of England sells the bonds it has bought back to the banks and destroys the cash it receives. That means in the long term there has been no extra cash created.
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