Britain in most serious financial crisis ever

| October 7, 2011

Bank of England Governor, Mervyn King, believes Britain is in the midst of the “most serious financial crisis ever”.

The Governor was speaking after the central bank’s Monetary Policy Committee (MPC) elected to keep interest rates on hold at the historically low level of 0.5%.

Interest rates have now been at this low level since March 2009 – when the economy was in the midst of recession.

However, the Bank announced yesterday that it will restart its quantitative easing (QE) scheme – a move which was widely expected after the Office for National Statistics (ONS) this week revealed the UK economy grew by 0.1% in the second quarter – slightly less than a previous estimate of 0.2%.

A recent slew of weak economic data had led to speculation that the central bank would embark on its “QE2” programme to boost the economy.

The Bank said it will pump a further £75 billion via its QE scheme after injecting £200 billion into the economy in November 2009.

QE, also known as printing money, is a process used for buying Government bonds or other financial assets.

Despite criticising the QE scheme previously, Chancellor George Osborne said it was now the right time to take action and boost the economy, while agreeing with Mr King’s comments on the seriousness of the crisis.

Mr Osborne approved the QE boost and said: “Given evidence of continued impairment in the flow of credit to some parts of the real economy, notably small and medium-sized businesses, the Treasury is exploring further policy actions. Such interventions should complement the MPC’s asset purchases.”

In the meantime, returning to Mr King’s comments, he added that he expects inflation to peak at 5% this year but is predicting it will fall sharply next year as hikes in the price of oil subside.

The latest official data shows consumer price inflation at 4.5% - more than double the 2% target.

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