Bank ‘prints’ £75bn and cuts interest rates in half

08:13 by Editor · 0 Post a comment on AAWR

The Bank of England announced yesterday that it would begin “printing money” on a massive scale in an unprecedented effort to kickstart growth.

The Bank said that it would pump £75 billion into the economy as it halved interest rates to 0.5 per cent in a last-ditch effort to combat the slump. It added that there was no limit to how far it could go down this untried route of quantitative easing.

Mervyn King, the Governor, said that it was very unlikely that interest rates could go any lower. With rates close to zero, the bank has been forced to resort to a drastic new strategy to try to breathe life into the economy.

After Alistair Darling gave permission for up to £150 billion of new money to be created – equivalent to 10 per cent of the entire economy – the Monetary Policy Committee swiftly approved detailed plans to inject an immediate £75 billion to boost the amount of cash and credit flowing in the economy. The figure is much bigger than expected by most of the City.

The Bank said that it would pump in the money over the next three months by buying up huge quantities of bonds – government and business IOUs – from high street banks.

It hopes that this will stimulate new lending and drive down lending charges to consumers and businesses.

Despite Mr King’s assurances, City experts warned that the plan was fraught with uncertainties and risks. Critics point to the experience of Japan, where quantitative easing was attempted early in this decade with scant success.

George Osborne, the Shadow Chancellor, described the move as “a leap in the dark”. Vince Cable, the Liberal Democrat Treasury spokesman, said that the new strategy was now “the only clear option”, but cautioned that the Bank would have to be on its guard against the danger that printing money sparked high inflation. continues here

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