Bank of England to print £50bn more in cash

The BoE announced that it was keeping interest rates at their historic low of 0.5 per cent yesterday as expected. However it surprised observers with the early announcement of an increase in its quantitative easing programme. It plans to print $50bn more cash to buy government bonds - or gilts - commercial paper and corporate bonds to try to boost the economy.

While in the past the two per cent inflation target was there to keep prices in check, now the Bank is more concerned with pushing the level of inflation up to that level.

The Bank said in a statement "The world economy remains in deep recession. Output has continued to contract and international trade has fallen precipitously. The global banking and financial system remains fragile despite further significant intervention by the authorities."

The move was seen by some analysts as evidence of increasing concern from the BOE’s monetary policy committee over the effectiveness of its policies. It has so far used up about £50bn of the initial £75bn committed to monetary easing, but after some initial success in pushing down rates, they have since risen again.

Even after yesterday’s announcement the 10-year gilt yield ended the day up at over 3.7 per cent higher and the stock market had lost all its early gains by the end of the day’s trading. More will be revealed in the BoE’s inflation report next Wednesday.

WHAT THEY ARE SAYING
Ian Campbell, BreakingViews.com: "The BoE, like Macbeth, has gone in far and is keeping going. It’s too early to know whether the first £75bn in newly-printed money has worked. That money is buying government bonds, but the purchases haven’t kept gilt yields down or clearly encouraged more bank lending."

Howard Archer, economist at IHS Global Insight, in the Daily Telegraph: "The Bank of England was always going to keep interest rates down at 0.5pc, but by expanding its quantitative easing programme by £50bn to £125bn indicates that the MPC believes that the economy still needs support despite recent mounting signs that the rate of economic decline is moderating."