BoE in surprise £50bn economic boost

The BoE surprised economists yesterday with bold plans to spend a further £50bn printing money for the UK economy. Many had expected the central bank to announce it was ceasing its printing operations, however it said instead it would increase the total programme from £125bn to £175bn. Previously the scheme was capped at £150bn.

The catalyst for the bank’s actions appears to be the fragile state of the world’s economy, in addition to a deeper recession at home than it had previously expected. The decision cheered investors, who gained confidence in an economic upturn and pushed the FTSE 100 index to a new year-high.

In his letter to the chancellor explaining the move, the bank’s governor Mervyn King said "On the one hand, there is a considerable stimulus still working through from the easing in monetary and fiscal policy and the past depreciation of sterling. On the other hand, the need for banks to continue repairing their balance sheets is likely to restrict the availability of credit, and past falls in asset prices and high levels of debt may weigh on spending."

In addition the bank kept interest rates unchanged at 0.5 per cent in its regular monthly announcement, in a widely-expected move.

WHAT THEY ARE SAYING:

Stephen Boyle, head of RBS group economics, in the Guardian: "We won't know for another few quarters if the first £125bn of asset purchases by the Bank of England has managed to stop the rot, but the monetary policy committee has clearly decided that it's better to be safe than sorry … This tells us that the committee believes the UK economy remains in intensive care and that a bigger defibrillator is needed to help it emerge from the worst downturn for a generation."

Former Bank policymaker Sushil Wadhwani in the Daily Telegraph: "It seems to me that with the economic indicators bouncing they didn't need to take the risk [of extending QE], though I don't think it will do a lot of harm at this stage."