Bank expands QE by £50bn

The Bank of England’s Monetary Policy Committee (MPC) has increased its quantitative easing programme by £50bn as it looks to shore up the UK’s ailing economy.

Its widely expected decision to pump more money into the economy takes the quantitative easing (QE) programme to £325bn. The last time the Bank extended QE was back in October, when it raised the asset purchasing scheme from £200bn to £275bn.

In a longer than expected statement accompanying the decision, the Bank said it was acting amid a decline in export markets, and tight credit conditions.

It said: "Some recent business surveys have painted a more positive picture and asset prices have risen. But the pace of expansion in the United Kingdom's main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries.

"A gradual strengthening of output growth later this year should be supported by a gentle recovery in household real incomes as inflation falls, together with the continued stimulus from monetary policy. But the drag from tight credit conditions and the fiscal consolidation together present a headwind. The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist."

As a result it said inflation was more likely to undershoot the 2% target in the medium term without intervention.

"In the light of its most recent economic projections, the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term.

"The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves."

It added the purchases would be carried out over the next three months.

The expansion comes after minutes from last month's MPC meeting revealed a growing consensus from members for a new round of QE, while markets have been factoring in a £50bn boost this month after the Bank held back from acting in January.

Meanwhile, the Bank has also opted to hold interest rates for the 35th consecutive month at 0.5%, where they have remained since March 2009.

Its decision to extend the asset purchase programme comes as the UK hangs on the verge of recession after the economy contracted by 0.2% in the last quarter of 2011.

The ongoing eurozone debt crisis has also contributed to an uncertain outlook, with the Greek crisis continuing to rumble on.

But against this, recent upbeat data from the manufacturing, construction and service sectors have hinted at a recovery. The likely prospect of a new EU/IMF bailout for Greece, meanwhile, has also helped steady markets.

The latest round of monetary stimulus comes amid a backdrop of falling inflation, with the CPI index easing from 4.8% in November to 4.2% in December. Next week's figures are expected to show a further drop in inflation, providing the MPC with the scope to act today.