Bank Of England Backs $79 Billion Money Injection

Published February 9, 2012 12:45PM (EST)

LONDON (AP) — The Bank of England said Thursday it will inject another 50 billion pounds ($79 billion) into the British economy, which contracted in the last three months of 2011.

The new stimulus approved by the nine-member Monetary Policy Committee raises the total since the program started in March 2009 to 325 billion pounds.

The hope is that by increasing the amount of money in the financial system, the purchases, known as quantitative easing or QE, will loosen credit for businesses and raise asset prices. Quantitative easing can be inflationary, but analysts say the bank has room to act.

The bank also Thursday kept its main interest rate unchanged at the record low of 0.5 percent.

"The committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2 percent target in the medium term," the bank said in a statement.

Though inflation is running at 4.2 percent, and more than double the Bank's 2 percent target, it is expected to fall back sharply this year as last year's sales tax increase and energy price spike drop out of the annual comparison.

The Bank said some recent surveys have painted a more positive picture, "but the pace of expansion in the United Kingdom's main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries."

It also said a gradual strengthening of growth later this year "should be supported by a gentle recovery in household real incomes as inflation falls, together with the continued stimulus from monetary policy."

The latest attempt to boost the U.K. economy comes ahead of next week's quarterly economic projections from the bank.

Minutes to Thursday's meeting will be published a week later, and investors will be interested to see whether the decision to pump more money into the U.K. economy was unanimous.

By Salon Staff

MORE FROM Salon Staff

Related Topics ------------------------------------------