Extra £50bn pumped into the economy
THE Bank of England’s Monetary Policy Committee decided to inject extra money into the economy today with a fresh round of Quantitative Easing.
Responding to continuing economic gloom, the MPC expanded the Bank of England’s QE programme by £50bn to £375bn.
Despite suggestions that a cut was on the card interest rates were again pegged at 0.5% as the ecomony continued to flounder amid low confidence and the ongoing euro zone situation.
The QE scheme has been criticised for not reaching the ‘real economy’ and also for forcing up inflation.
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David Scott, senior stockbroker at Redmayne-Bentley, said: “Today’s action of more QE was well flagged and comes as no real surprise. The action however fails to address the issue that this is a European solvency crisis and not a liquidity crisis.
“Those opposed to QE argue that it’s just a means by which the Government prints its own money, as it continues to spend way in excess of what it receives in. We have the bizarre and some would say reckless situation where the Bank of England owns a third of the National debt (built up over hundreds of years but which has doubled in the last seven years) via previous QE, on behalf of the treasury.
“The fortunes of the British Economy currently lie beyond the control of the Bank of England as Europe’s debt crises moves onto the next and potentially a more corrosive stage.
“With very few weapons left the Bank needs to be very careful, as the tools it has available may be much more effective later and may be even more needed when Greece or even Germany leaves the Single Currency union. I take the view that before the year end and possibly even before the summer is out we will see the return of the Drachma.”
The Bank of England said: “At its meeting today, the Committee agreed that the Funding for Lending Scheme, which would be launched shortly, was a welcome initiative.
“It also noted recent and prospective actions to ease liquidity constraints within the banking system.
“Taken together with reduced pressure on household real incomes, on the back of lower commodity prices, and the continued stimulus from past monetary policy actions, that should sustain a gradual strengthening of output growth.”
