By Richard Johnstone | 6 October 2001
The Bank of England has today announced that it plans to inject £75bn into the economy through quantitative easing.
The Bank’s Monetary Policy Committee confirmed that it would extend the QE programme, which increases the supply of money by buying assets such as government bonds, from the current level of £200bn.The MPC said that the deterioration in the economic outlook due to the eurozone difficulties had made it more likely that inflation would undershoot the 2% target in the medium term, so it was necessary to inject further monetary stimulus into the economy. It said that the purchase of assets would take place over the next four months.
The committee said the tensions in the world economy threatened the UK recovery as it voted to maintain the bank’s interest rate at 0.5%.
The announcement followed the assertion from Chancellor George Osborne at the Conservative party conference on Monday that he and Prime Minister David Cameron were ‘monetary activists’.
The decision to increase the quantitative easing programme was welcomed by the CBI, which said that the bank had responded ‘promptly’ to the deteriorating economic situation.
Ian McCafferty, the CBI’s chief economic adviser, said: ‘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. Only once the turmoil in the eurozone is resolved will confidence be fully restored.’
The Centre for Economics and Business Research said that the
decision was ‘surprising’ as it exceeded calls for a £50bn increase.
Senior
economistBenjamin
Williamson said: ‘There can
be no doubt that the UK is having something of a “recovery crisis”. Growth has
struggled to gain any momentum and the latest indicators have pointed to an
increased chance of recession – even if survey data this week was marginally
better than expected.
‘However, it is still open to debate whether the asset purchases to date actually had any lasting impact on economic growth in and of themselves.’
The move follows the announcement yesterday that economic growth in the second quarter of this year was only half that originally estimated. The Office for National Statistics reduced its measure of gross domestic product growth between April and June from 0.2% to 0.1%.
