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Bank of England quantitative easing policy move eyed Bank of England injects further £75bn into economy
(about 2 hours later)
The Bank of England will announce its latest monetary policy decision at midday, with economists waiting to see if the central bank introduces more quantitative easing (QE). 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.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.
There has been much speculation that it will announce a further £50bn of QE. 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 is also expected to hold interest rates at 0.5%. The Bank also held interest rates at the record low of 0.5%.
The central bank initially announced it was pumping £75bn into the economy in March 2009, but expanded the programme to £200bn later that year.
It has made no further announcements on QE since then, but given the fragility of the UK's economic recovery, there have been recent calls for the Bank to step in once again.
On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.
The BBC's economics editor, Stephanie Flanders, says the only question is whether the Bank's Monetary Policy Committee (MPC) votes to push the button now or in November. "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," href="http://www.bankofengland.co.uk/publications/news/2011/092.htm" >the Bank said in a statement.
The argument for an immediate injection is that some would say the threats hanging over the recovery are so serious that there is no time to waste. "The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term.
The argument for waiting is that, by next month, the MPC will have a new set of economic forecasts to guide their decision - and perhaps a better sense of where the crisis in the eurozone is heading, she says. "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."
'Warranted'
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 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".