Thursday, 6 August 2009

Bank of England tips in more cash

The Bank of England wrongfooted most economists on Thursday when it unexpectedly hiked its quantitative easing programme to 175 billion pounds.

The Bank of England says it will pump even more money into the British economy.

In a surprise move Britain's central bank raised its quantitative easing programme by 50 billion pounds, from 125 to 175 billion.

The move is designed not to boost growth, but to ensure inflation remains around the Bank's 2 percent target.

Peter Warburton is director of Economic Perspectives.

Peter Warburton, Economic Perspectives director saying,

"I'm delighted, I think it's much too soon to abandon this policy and I'm glad we have the additional scope."

While a spate of recent data points to an economic recovery, the Bank of England says it remains worried about a widening output gap.

And the Bank says more quantitative easing remains an option.

As expected its interest rate remained at 0.5 percent.

And there were no surprises in Thursday's other major announcement, as the European Central Bank kept its interest rate at a record low one percent.

ECB president, Jean-Claude Trichet, warned the euro zone will remain weak, despite a more positive outlook.

European Central Bank President, Jean-Claude Trichet, saying:

"While uncertainty is still high there are increasing signs that the global recession is bottling out. As regards the Euro area, recent surveys suggest that the pace of contraction is clearly slowing down. However, economic activity over the remainder of this year is expected to remain weak."

The Euro Zone's gross domestic product plunged by 2.5 percent in the first quarter of 2009.

The ECB has slashed interest rates by 325 basis points since October.

Analysts expect this level to remain until the end of the third quarter in 2010.

Andrew Potter, Reuters