The Bank’s Monetary Policy Committee (MPC) voted today to extend its asset purchase programme to £375bn, over three years since it first started the programme in March 2009.
In a longer than usual statement the Bank said it was acting because of depressed output growth.
“UK output has barely grown for a year and a half and is estimated to have fallen in both of the past two quarters. The pace of expansion in most of the United Kingdom’s main export markets also appears to have slowed,” it said.
“Business indicators point to a continuation of that weakness in the near term, both at home and abroad. In spite of the progress made at the latest European Council, concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here.
“The correspondingly weaker outlook for UK output growth means that the margin of economic slack is likely to be greater and more persistent.”
The Bank’s Monetary Policy Committee added inflation should continue to weaken further from here, providing more scope to expand the QE programme.
It said: “Against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term.”
The MPC said it expects the asset purchases to take four months to complete.
Sally Laker, managing director of Mortgage Intelligence Holdings, commented: “Today’s decision shows that the Bank of England is prepared to take decisive action to address the country’s growth and inflation concerns.
“From a mortgage industry viewpoint, today’s news would be seen as a positive move and a better alternative to reducing the base rate.
“Opinion is divided on the long-term impact of Quantitative Easing and we all recognise that it is not a solution in itself that can remedy the issues we’re facing on UK shores and in the eurozone.
“Broader questions remain on how we can tackle the issues concerning wholesale funding, securitisation and consumer confidence.
“Overall, there’s still a feeling among brokers that the market is slow so we can only hope that the recent measures announced by the Government and Bank of England, such as the Funding for Lending scheme, will deliver by increasing both the flow of credit and mortgage lending volumes.”
The additional stimulus comes following yesterday’s below-par manufacturing figures, which showed the sector contracted for the second straight month in June, with new orders continuing to decline.
UK GDP fell by 0.3% in the first three months of the year, sending the UK into recession following a 0.3% drop in the previous quarter.
The Office for National Statistics is to release its initial estimate for Q2 GDP figures on 25 July, with another negative print predicted by economists at RBS.
Some forecasters had expected the bank to announce further QE last month, but governor Mervyn King was overruled by colleagues amid fears over ‘sticky inflation’ stunting growth.
Consumer Price Index (CPI) inflation is now down at 2.8%, having fallen from April’s reading of 3%.
Minutes from the Committee’s last meeting in June show five members of the MPC – including Charles Bean and Paul Tucker – opted to maintain QE at its current level.
At that meeting. Mervyn King (pictured), David Miles and Adam Posen opted to increase the programme by £50bn, while Paul Fisher opted for a £25bn expansion.
