By Simon Miller
The Bank of England’s Monetary Policy Committee (MPC) has increased its money printing by £50bn to a total of £375bn.
With UK output barely growing for a year and a half and being estimated to have actually fallen in the past two quarters, the committee voted to increase quantatitive easing by £50bn.
In a statement, the BoE commented: "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."
At its meeting, the committee agreed that the Funding for Lending Scheme, which would be launched shortly, was a welcome initiative. It also noted recent and prospective actions to ease liquidity constraints within the banking system. Taken together with reduced pressure on household real incomes, on the back of lower commodity prices, and the continued stimulus from past monetary policy actions, that should sustain a gradual strengthening of output growth.
"But 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 statement continued.
In his response, the chancellor George Osborne commented: "I agree that an increase in the ceiling would provide the MPC with the scope to meet the inflation target in the medium term. Monetary policy continues to have a critical role in supporting the economy as the Government delivers on its commitment to fiscal consolidation and it remains the primary tool for responding to changes in the economic outlook. As I noted in my letter to you of 6 October 2011, the Bank of England's analysis has provided evidence on the effectiveness of asset purchases in supporting demand."
The committee also voted to maintain the bank rate at 0.5% and it expects the announced programme of asset purchases to take four months to complete with the scale of the programme being kept under review.