Money


Bank of England in £25bn boost

12:49pm Monday 6th July 2009

Bank of England plans more quantative easing Bank of England plans more quantative easing

The Bank of England is this week expected to announce another £25 billion boost for its programme to increase money supply and tackle recession.

Policymakers are widely forecasted to leave interest rates on hold at their historic low of 0.5% for the fourth month in a row at the July meeting, but experts are braced for a further expansion of the Bank's Quantitative Easing (QE) programme.

It is widely thought the Bank will increase the QE purchases of gilts and other assets to £150 billion - the upper limit set by the Treasury.

But it is unclear whether the Bank will seek permission to extend the limit from the Treasury, which indemnifies the Bank against losses on the scheme.

There has been encouraging data suggesting the worst of the recession may be over, with recent sector surveys giving hope of a recovery by the end of the year.

However, the Bank's own credit conditions report last week confirmed lending is still tight, despite the QE efforts so far since March.

Howard Archer, chief economist at IHS Global Insight, said he believed the Bank may ask Treasury approval for a higher QE limit.

"While there seems absolutely no doubt that the Bank of England's Monetary Policy Committee (MPC) will keep interest rates unchanged at a record low of 0.5% at their July meeting, we believe that there is a strong possibility that they will expand the bank's Quantitative Easing programme by a further £25 billion to £150 billion."

He added: "Furthermore, we think the Bank of England is likely to ask the government for permission to increase the upper limit of £150 billion for the QE programme."

The MPC begins its two-day rates meeting on Wednesday and will announce its decision at midday on Thursday.


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