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The Bank of England on Thursday reactivated extraordinary stimulus measures by agreeing to inject £75 billion into British economy caught up in a global slowdown and raging eurozone debt crisis.
Following a two-day policy meeting, the BoE voted in favour of increasing its quantitative easing (QE) policy by £75 billion (86 billion euros, $115 billion) to £275 billion over a four-month period.
Its nine policymakers also decided to keep the BoE's main interest rate at a record-low 0.50 percent.
The decision to hold interest rates had been widely expected, while many economists had forecast more stimulus measures as the country's economic recovery falters.
In reaction, the pound hit a 14-month low against the dollar but the London stock market was up 2.30 percent.
"The Bank of England's Monetary Policy Committee (MPC) today voted to maintain the official bank rate paid on commercial bank reserves at 0.5 percent," the BoE said in an official statement.
"The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion."
Also on Thursday, the European Central Bank held its key interest rate at 1.5 percent, shrugging off speculation it could cut borrowing costs to help combat the region's sovereign debt debacle.
The Bank of England announcement came one day after official data showed the British economy had flatlined over the past nine months and that the 2008/2009 recession was worse than previously thought.
The BoE on Thursday said that Britain's recovery was being endangered by a flat world economy and the vicious eurozone debt crisis that has sparked massive EU/IMF bailouts for Greece, Ireland and Portugal.
"The pace of global expansion has slackened, especially in the United Kingdom's main export markets," the British central bank said.
"Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery."
The BoE's key interest rate has stood at 0.50 percent since March 2009, when the bank also decided to begin pumping new cash into the economy under quantitative easing -- which is more commonly referred to as "printing money".
Under QE, a central bank pumps out new cash by purchasing assets such as government and corporate bonds in a bid to encourage lending and in turn boost economic activity.
The Bank of England had injected a total of £200 billion into the economy between March 2009 and January 2010.
Howard Archer, chief European economist at the IHS Global Insight consultancy, said the BoE had good reasons for not cutting its key interest rate to below 0.50 percent in a bid to boost growth.
"It is notable that even at the height of the 2008/9 recession, the MPC was reluctant to take interest rates below 0.50 percent, partly because of the negative repercussions that this could have on the profitability of banks and on their capacity to lend," he said.
"There are also serious doubts about just how much benefit even lower interest rates would have."
Some experts claim that while QE can help to kick-start an economy, it also threatens to fuel inflation, which in the long run can actually hinder growth.
With British annual inflation currently at 4.5 percent -- far above the BoE's 2.0 percent target -- the bank faces a tricky balancing act.
Britain's economy almost ground to a halt in the second quarter slowed by weak consumer spending and industrial output, revised data showed on Wednesday.
Gross domestic product (GDP) -- the combined value of all services and goods produced in the economy -- grew by just 0.1 percent in the three months to June, meaning that it flatlined over the past nine months.
Britain hauled itself out of a deep recession in the third quarter of 2009, but its recovery has also been severely constrained by the impact of collapsing consumer confidence and painful state austerity cuts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Bank of England on Thursday reactivated extraordinary stimulus measures by agreeing to inject £75 billion into British economy caught up in a global slowdown and raging eurozone debt crisis.
Following a two-day policy meeting, the BoE voted in favour of increasing its quantitative easing (QE) policy by £75 billion (86 billion euros, $115 billion) to £275 billion over a four-month period.
Its nine policymakers also decided to keep the BoE's main interest rate at a record-low 0.50 percent.
The decision to hold interest rates had been widely expected, while many economists had forecast more stimulus measures as the country's economic recovery falters.
In reaction, the pound hit a 14-month low against the dollar but the London stock market was up 2.30 percent.
"The Bank of England's Monetary Policy Committee (MPC) today voted to maintain the official bank rate paid on commercial bank reserves at 0.5 percent," the BoE said in an official statement.
"The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion."
Also on Thursday, the European Central Bank held its key interest rate at 1.5 percent, shrugging off speculation it could cut borrowing costs to help combat the region's sovereign debt debacle.
The Bank of England announcement came one day after official data showed the British economy had flatlined over the past nine months and that the 2008/2009 recession was worse than previously thought.
The BoE on Thursday said that Britain's recovery was being endangered by a flat world economy and the vicious eurozone debt crisis that has sparked massive EU/IMF bailouts for Greece, Ireland and Portugal.
"The pace of global expansion has slackened, especially in the United Kingdom's main export markets," the British central bank said.
"Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery."
The BoE's key interest rate has stood at 0.50 percent since March 2009, when the bank also decided to begin pumping new cash into the economy under quantitative easing -- which is more commonly referred to as "printing money".
Under QE, a central bank pumps out new cash by purchasing assets such as government and corporate bonds in a bid to encourage lending and in turn boost economic activity.
The Bank of England had injected a total of £200 billion into the economy between March 2009 and January 2010.
Howard Archer, chief European economist at the IHS Global Insight consultancy, said the BoE had good reasons for not cutting its key interest rate to below 0.50 percent in a bid to boost growth.
"It is notable that even at the height of the 2008/9 recession, the MPC was reluctant to take interest rates below 0.50 percent, partly because of the negative repercussions that this could have on the profitability of banks and on their capacity to lend," he said.
"There are also serious doubts about just how much benefit even lower interest rates would have."
Some experts claim that while QE can help to kick-start an economy, it also threatens to fuel inflation, which in the long run can actually hinder growth.
With British annual inflation currently at 4.5 percent -- far above the BoE's 2.0 percent target -- the bank faces a tricky balancing act.
Britain's economy almost ground to a halt in the second quarter slowed by weak consumer spending and industrial output, revised data showed on Wednesday.
Gross domestic product (GDP) -- the combined value of all services and goods produced in the economy -- grew by just 0.1 percent in the three months to June, meaning that it flatlined over the past nine months.
Britain hauled itself out of a deep recession in the third quarter of 2009, but its recovery has also been severely constrained by the impact of collapsing consumer confidence and painful state austerity cuts.
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