Economy benefits from an additional cash injection

The economy is to benefit from an additional £50 billion, which is to be ploughed into the economy through the government’s quantitative easing programme.

The measure was announced following the recent Monetary Policy Committee meeting, where it was also decided that the base interest rate would be kept on hold for yet another month at 0.5 percent, still the lowest level that it has ever been in the three hundred and fifteen year history of the Bank of England.

Fears over the recession being more prolonged and deeper than many had originally thought appears to have sparked the decision to use the QE process to further ease economic struggles, and means that the total amount that will have been injected into the economy through this measure will total £175 billion.

Originally, the amount put into the economy through QE was £75 billion, although the chancellor, Alistair Darling, had said that a further £75 billion was available if needed, bringing the total to £150 billion. The amount actually used has now surpassed that amount.

One economist said that the decision came as something of a surprise. He said: ‘Looking at the initial headlines, I’m just struck by how backward looking a lot of it is, focusing on the economy in recession and that there is a large output gap. We knew all that, what has changed? They seem to be giving much more weight to the backward looking data, how they judge the current position, rather than believing the better surveys.’

Quantitative easing involves the purchase of government debts in order to try and increase availability of credit to businesses and households. However, some officials have expressed concern over the use of QE, stating that it could result in inflationary risks.

Tags: output, uk economy, recession, bank of england, injection, better surveys, money, surprise