Bank of England pumps more cash into economy to support recovery

Thu Feb 9, 2012 8:16am EST
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By Sven Egenter and David Milliken

LONDON (Reuters) - The Bank of England voted to inject more cash into the economy to shore up a fragile recovery and shield the country from fallout from the unresolved euro zone debt crisis.

The central bank said on Thursday it would buy another 50 billion pounds of assets - mostly government bonds - with freshly printed money, taking the total to 325 billion pounds, as economists had expected. The BoE also left its key interest rate at a record-low 0.5 percent.

The cash boost is welcome news for the government, which has come under pressure again to loosen its austerity drive after the economy shrank at the end of 2011 and unemployment hit its highest level in more than 17 years.

"Some recent business surveys have painted a more positive picture and asset prices have risen," Bank of England Governor Mervyn King said in a letter to finance minister George Osborne, explaining the decision.

"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," he added.

The central bank said inflation would have probably fallen below the target of 2 percent over the medium term without further easing, as a significant amount of unused capacity in the economy was bearing down on prices.

Some improvement in Britons' real incomes was set to support a gradual recovery this year, though the tight credit conditions and the government's austerity measures presented headwinds.

Osborne said the central bank's loose monetary policy continued to play a "critical" role in supporting the economy as he continued his austerity program, and remained the main tool to respond to changes in the outlook.   Continued...