Bank of England injects another £75 billion into UK economy

The Bank of England has decided to boost its quantitative easing scheme by £75 billion.

The scheme, which was initially introduced in 2009 in an attempt to ease liquidity and reduce the impact of the credit crisis, has remained untouched since 5 November 2009, when it was increased from £175 billion to £200 billion.

The objective of the quantitative easing scheme is to boost the supply of money through large-scale asset purchases, which should help the Monetary Policy Committee (MPC) to keep inflation down.

According to the Bank of England, inflation is likely to rise to 5 per cent next month, and as interest rates are already at rock bottom, the decision to boost quantitative easing is one of the only options the MPC had available to bolster the UK economy, and stunt inflation.

In its statement, the Bank of England said that: "Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery."

Business groups have welcomed the moves, but are doubtful as to the immediate impact this will have on economic growth. Ian McCafferty, CBI Chief Economic Adviser, said:

"With the risks to the economic outlook increasing, the MPC has acted promptly by extending quantitative easing this month.

"This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest. Only once the turmoil in the Eurozone is resolved will confidence be fully restored."

The MPC also voted to keep interest rates at their record low of 0.5 per cent.