Bank expands quantitative easing to £375 billion

| July 5, 2012 | 0 Comments
Bank expands quantitative easing to £375 billion

The Bank of England (BoE) is injecting another £50 billion into the economy, increasing its quantitative easing programme to £375 billion in total.

The BoE decided to increase the bond buying programme due to slowing growth in export markets and the ongoing recession.

The Bank has also decided that interest rate will remain at the historic low of 0.5 per cent, where it has been since March 2009.

The Governor of the Bank of England, Sir Mervyn King, said last week that he was shocked at how quickly economic conditions had worsened.

Revised figures for the final quarter of last year show that GDP contracted by 0.4 per cent between October and December, rather than 0.3 per cent as previously thought.

The Markit/CIPS Purchasing Managers’ Index (PMI) for the service sector fell to 51.3, down from 53.3 in May, with a figure of more than 50 representing expansion.

The European Central Bank has also reduced its core interest rate to a new low of 0.75 per cent, as the eurozone crisis continues to inhibit growth.

News of the new economic stimulus by the BoE has raised fears about how it will affect pension funds.

The National Association of Pension Funds (NAPF) warns that it will cause further damage to retirement values.

Under the quantitative easing programme the Bank of England buys government bonds known as gilts from banks, insurance and pension companies.

This reduces the number on the market, causing the price of the remaining gilts to increase, reducing their yields and therefore reducing the amount of annuity income a pensioner can buy.

Annuity rates have fallen substantially since 2009, when the quantitative easing programme was launched.

According to Saga Group, quantitative easing has already forced over one million pensioners to buy much lower retirement incomes.

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