**The Bank of England’s rate-setters have decided to pump another £50bn of new money into the economy in their programme of quantitative easing.**They have spent £125bn so far in their attempts to stimulate the economy by putting more money into circulation.
Bank of England governor Mervyn King had to ask the chancellor’s permission to extend the programme beyond £150bn.
The rate-setters also decided to keep interest rates unchanged at their historic low of 0.5% for a sixth month.
In a statement, they said that the UK recession “appears to have been deeper than previously thought”.
“The Bank’s policymakers probably believe there is greater risk in doing too little than in doing too much”
Stephanie Flanders, BBC economics editor
Is quantitative easing working
“But the pace of contraction has moderated and business surveys suggest that the trough in output is close at hand,” they added.
Also on Thursday, the European Central Bank decided to keep its interest rates unchanged at 1%.
‘More to do’
BBC economics editor Stephanie Flanders said that the Monetary Policy Committee’s (MPC) £50bn expansion of the programme would surprise many in the markets.
“Most expected the MPC to either put the quantitative easing policy on hold or simply spend the remaining £25bn authorised by the chancellor in March. The expansion suggests that the Bank thinks quantitative easing has more to do.”
“Clearly the MPC has taken seriously the sharper-than-expected decline in second-quarter economic growth.”
“Despite today’s encouraging economic news, the Bank’s policymakers probably believe there is greater risk in doing too little than in doing too much.”
Following the announcement, the pound gave up much of its recent gains against the US dollar, falling more than a cent to $1.6830.
Slower rate
There will now be increased focus on the Bank’s latest economic projections, which will be published in the quarterly Inflation Report on Wednesday, 12 August.
The extra £50bn will be spent over the next three months, which is a slower rate of spending than when the programme began in March.
The Bank has said it will have to expand the range of government debt it is prepared to buy.
In its statement, it also noted that “though there are signs that credit conditions may have started to ease, lending to business has fallen”.
The British Chambers of Commerce picked up the theme, saying that “many viable small firms are finding it difficult to access credit”.
It urged the MPC to buy more debt from companies instead of government debt, adding that “the risks of not persevering with an aggressive policy stimulus are much bigger than the risks of extending the QE programme”.