The Bank of England launched a third round of monetary stimulus on Thursday, announcing it would restart its printing presses and buy £50-billion ($78-billion U.S.) of asset purchases with newly created money to help the economy out of recession.
The move was widely expected after BoE Governor Mervyn King said last month the economic outlook had deteriorated since the BoE called a halt to its second round of asset purchases – also known as quantitative easing – in May.
The BoE has bought £325-billion of government bonds to date, and the purchases announced on Thursday take this total to £375-billion.
Although Greek elections last month avoided a worst-case outcome of a government vehemently opposed to the country’s bailout, the euro zone debt crisis continues to fester and is increasingly weighing on the global economy.
The European Central Bank is widely expected to cut interest rates when it announces its policy decision at 1145 GMT, although the BoE kept its interest rate on hold at 0.5 per cent, where it has been since March, 2009.
Britain’s economy has been in recession according to official data since late last year, and private-sector data is also showing a slowdown.
Inflation has fallen more than expected to 2.8 per cent, easing some of the concerns that caused the BoE to halt stimulus in May, though it is still well above its 2-per-cent target.
The QE stimulus follows joint measures announced by the government and BoE last month to improve the flow of credit to businesses, and to ensure banks do not suffer from a lack of ready cash if the euro zone crisis deepens.
The BoE says its purchases of government bonds help the economy by encouraging other investors to buy riskier assets instead, making it easier for large companies to raise funds through bond or share issues. Critics argue the BoE needs to do more to boost the flow of credit to smaller companies.