Bank may give another £50bn boost

Jul 5 2012

Billions of pounds of emergency cash is expected to be pumped into the economy amid growing fears the UK remains mired in recession.

The Bank of England's Monetary Policy Committee (MPC) is widely predicted to boost its Quantitative Easing (QE) programme by another £50 billion to £375 billion when it announces the outcome of its latest monthly meeting.

Figures released this week showed the economy worsened in June, after the construction and manufacturing sectors contracted and the powerhouse services sector suffered its worst performance in eight months.

Economists said the figures suggested the economy continued to shrink or at best was flat in the second quarter of 2012, making it more likely the Bank would swing into action.

Nida Ali, economic advisor to the Ernst & Young ITEM Club, said the surveys released this week "have disappointed" and "strongly suggest" the Bank will authorise additional QE at the meeting, "probably to the tune of £50 billion".

Chris Williamson, chief economist at Markit, which helped devise the surveys, said the results were "firmly in the territory that has triggered action from the MPC in the past".

The Bank and Treasury have recently made major moves to try to kick-start lending and rescue the country from a double-dip recession. On Friday, the Bank said rules should be relaxed to free up billions of pounds of cash held on their balance sheets as a so-called liquidity buffer.

This followed the announcement earlier this month of a £100 billion-plus scheme to boost bank lending. The Bank is working on a new "funding for lending" scheme, while last week it held its first £5 billion monthly auction under a six-month loan facility programme.

Official figures also showed the double-dip recession was deeper than originally feared as revised figures revealed a sharper decline in the economy in the final quarter of last year, when gross domestic product (GDP) shrank by 0.4% between October and December, compared with a previous estimate of 0.3%.

In addition, inflation has fallen by more than expected in recent months, with CPI inflation coming down to 2.8% in May - the lowest level since November 2009 - which will give the Bank more leeway to restart its money printing programme.