Thursday, October 6, 2011

UK launches fresh stimulus with 75 billion pound boost

The Bank of England will spend 75 billion pounds more of newly-created money to shield Britain's economy from the euro zone debt crisis and keep a faltering recovery going, opting for an early, dramatic move to maximise the impact.

Today's decision by the BoE to expand its asset purchase programme to a total of 275 billion pounds highlights the precarious state of Britain's economy as global growth slows, government spending cuts and tax hikes bite, and consumers face high inflation and slow wage rises.

BoE governor Mervyn King said in a letter to finance minister George Osborne that the global economic recovery had slowed, and that the euro debt crisis had created severe strains on
financial markets.

"These tensions in the world economy threaten the UK recovery," King said.

While inflation was still expected to rise above 5 percent over the next months, the recent deterioration of the outlook had made it more likely inflation would undershoot the 2 percent target over the medium term.

The bold move puts the BoE ahead of other central banks in responding to a darkening global economic outlook and renewed market turmoil.

All eyes will now be on the European Central Bank later this session to see if it primes markets for pre-Christmas interest rate cuts.

The UK central bank kept interest rates on hold at a record-low 0.5 percent, while the ECB has raised them twice this year to 1.5 percent.