Bank holds off recession cash boost

Jul 9 2009

Bank of England bosses have held off from further help to ease the recession with a surprise refusal to pump extra cash into the economy.

The Bank's Monetary Policy Committee (MPC) had been widely expected to expand its quantitative easing (QE) programme - effectively printing money - by £25 billion to £150 billion.

But the scale of the operation was left unchanged at £125 billion, while interest rates were held at their current 0.5% record low for the fourth month in a row.

The decision comes despite concerns over the fragility of recent signs of stabilisation in the economy following a steep decline.

Manufacturing output showed a surprise fall in May, while official figures have shown a far worse than expected 2.4% slump in overall GDP in the first three months of 2009 - the worst in more than 50 years.

In a short statement, the Bank said its current QE operations would take another month to complete. It will review the programme again at its August meeting, alongside its latest inflation projections.

The pound immediately gained 1% against the dollar, climbing above 1.62 US dollars on signs the Bank is more optimistic about economic prospects.

According to the Bank's own data, credit conditions remain tight and lending to business fell in April and May - suggesting that the boost to the money supply is having little immediate impact.

Despite the decision to hold back from further QE this month, the CBI business group predicted the programme would eventually be extended.

Chief economic adviser Ian McCafferty said: "With the economy and credit conditions still very weak, the Bank's quantitative easing programme has further to run. After only five months, it is still too early to determine the effects on the wider economy. So, a further extension through the autumn is needed."