(RTTNews) - The Bank of England on Thursday unexpectedly expanded its quantitative easing program by GBP 75 billion to stimulate the ailing U.K. economy amid concerns about debt contagion and severe strains in bank funding. The nine-member Monetary Policy Committee headed by Governor Mervyn King increased the stock of asset purchases financed by the issuance of central bank reserves to GBP 275 billion from GBP 200 billion. Policy makers also voted to hold the interest rate at 0.50 percent. The current rate is the lowest since the central bank was established in 1694. The previous change in interest rate was in March 2009 when it was lowered by 0.5 percentage points. At the September MPC meeting, Adam Posen was the only member who called for GBP 50 billion increase in the asset purchase programme. The minutes of today's meeting is due on October 19. The central bank was expected to increase the QE next month by just GBP 50 billion, when policy makers will have growth and inflation forecasts available from the November Inflation Report. Howard Archer, an economist at IHS Global Insight said the increase in QE by GBP 75 billion is no great surprise given the clear increasing risk of recession. The asset purchase programme using newly created central bank money was initiated on March 5, 2009. By November 2009, the size of the programme was raised to GBP 200 billion. The MPC expects the programme of asset purchases to take four months to complete. The central bank observed that vulnerabilities associated with the indebtedness in euro area sovereigns and banks resulted in severe strains in bank funding markets. The U.K. recovery is being threatened by tensions in the world economy. Although stimulatory monetary stance and the current level of sterling should help to underpin demand, the weaker outlook and heightened downside risks suggests that the margin of slack in the economy is likely to be greater and more persistent than previously expected. The greater than expected weakness in the outlook add possibility of inflation undershooting the 2 percent target in the medium term. Inflation remains stubbornly above the 2 percent target in the U.K. The central bank sees inflation falling back sharply in 2012 as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists. The economy expanded only 0.1 percent in the second quarter, according to final figures from the Office for National Statistics, published on Wednesday. However, recent Purchasing Managers' survey pointed to better than expected improvement in the U.K. service and manufacturing activity during September.BoE Lifts QE By GBP 75 Bln; Rates On Hold
Thursday, 6 October 2011
10/6/2011 8:27 AM ET
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