Bank of England to launch £50bn economic stimulus

Bank of England to launch £50bn economic stiumulus

The bank of England is expected to launch another round of quantitative easing (QE) this week, in the hope of preventing the UK falling into another recession, after the economy contracted by 0.2 per cent at the end of last year.

The bank is likely to pump at least £50 billion into the economy by purchasing government gilts from pension funds and insurers with electronically created money.

This round of QE, which is designed to bring down borrowing costs, follows a £75 billion injection into the economy last October.

Since the QE programme started in March 2009, the Bank has bought £275 billion in gilts.

A final decision on the latest round of QE will be made at this week’s Monetary Policy Committee (MPC) meeting.

Some economists believe that last week’s welcome news that the UK’s manufacturing and services sector has grown to its highest level for ten months may lead the MPC to review the scale of the latest round of QE.

Last week The National Institute of Economic and Social Research (Niesr) called for the government to ease back on spending cuts in order to encourage the economy to grow.

The think tank warned that the UK economy will enter recession in the first half of 2012 if households continue to cut back on their spending.

Niesr forecasts that the economy will shrink 0.1% in 2012, however if the eurozone debt crisis is resolved the UK economy could grow 2.3% in 2013, it said.

“We forecast a return to technical recession in the first half of this year, as households continue to retrench, credit conditions remain tight, and businesses are reluctant to invest given uncertainty about both domestic and foreign demand,” the think tank said in its UK and World Economy Forecast.

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