The Bank of England (BoE) said it would pump out another STG50 billion ($A101.13 billion) of new money and kept interest rates at a record-low 0.5 per cent as Britain battles a deep recession.
The move to increase the new money supply to STG125 billion ($A252.83 billion) to boost bank lending had not been expected by markets, while the decision to freeze the BoE’s key interest rate was widely forecast.
“The Bank of England’s Monetary Policy Committee (MPC) today voted to maintain the official bank rate paid on commercial bank reserves at 0.5 per cent,” said an official statement.
“The Committee also voted to continue with its program of asset purchases financed by the issuance of central bank reserves and to increase its size by STG50 billion ($A101.13 billion) to a total of STG125 billion ($A252.83 billion).”
British interest rates hit 0.5 per cent – the lowest level in the BoE’s 315-year history – back in March.
At the same time, the central bank announced a program of quantitative easing (QE), whereby it agreed to create STG75 billion ($A151.7 billion) of new money – a move seen by many observers as a last chance to free Britain from the global credit crunch that erupted in 2007.
“The Bank of England was always going to keep interest rates down at 0.50 per cent, but by expanding its quantitative easing program … indicates that the MPC believes that the economy still needs support, despite recent mounting signs that the rate of economic decline is moderating,” said Howard Archer, chief Britain economist at IHS Global Insight consultancy.
Britain’s finance minister Alistair Darling has authorised the BoE create up to STG150 billion ($A303.4 billion) of new money under QE.
The BoE, facing a global recession and falling inflation in Britain, has meanwhile slashed borrowing costs from a rate of 5.0 per cent last October to the current record-low level.
“The world economy remains in deep recession,” the BoE said in its statement on Thursday.
“Output has continued to contract and international trade has fallen precipitously. The global banking and financial system remains fragile despite further significant intervention by the authorities,” it added.
Following the BoE’s news, sterling dropped below 1.13 euros ($A2.01). Markets were meanwhile awaiting an expected cut in eurozone borrowing costs to a record-low 1.0 per cent. The European Central Bank announces its decision at 1145 GMT.