Bank of England Pumps more money into the economy.

The Bank of England (BoE) today voted to maintain the Bank rate at 0.5%, continuing the long running record low. This was contrary to some speculation, albeit small, that the Bank may reduce the bank rate further.

The Banks response to this is that lowering rates further would not have the desired impact, of course this remains an option to them over the medium term. Indeed the European Central Bank did cut its rate today from 1% to 0.75%.

However the Banks Monetary Policy Committee (MPC) did vote to increase the level of the asset purchase programme, known as Quantitative Easing by £50bn.

This extra £50bn being pumped into the economy raises the total amount within the QE stimulus to £375bn. Without this increase the Bank sees a danger that the UK Inflation will fall below its target rate of 2%. This is concern in mainly due to:

  • the UK economy, which is back in recession, had “barely grown for a year and a half”.
  • growth in export markets had also slowed.
  • the eurozone debt crisis was “weighing on confidence here”

“Looking at whats happened to lending and other economic data since the Bank re-started quantitative easing last autumn, many in the City are wondering how much difference this extra liquidity is likely to make”, Stephanie Flanders, BBC Economics editor

New stimulus

This extra £50bn stimulus is on top of two other measures introduced by the Bank last month.

1. The first was to provide banks with acess to tens of billions of cheap credit on the basis they they lend this to business.

2. The second provides the banks with access to cash, should they encounter any short-term funding difficulties.