Economy to get extra 50bn boost



The Bank of England has kept interest rates on hold at 0.5% and announced that it will pump an extra 50bn into the UK economy.

With little room for rate cuts the Bank has been pumping money into the banking system through quantitative easing.

The process involves the Bank effectively printing money to buy government and corporate bonds.

It has spent about 54bn so far and is on track to spend 75bn by June. It will now extend its spending to 125bn.

The Bank of England had not been expected to announce an extension of the programme until at least next Wednesday when its latest set of economic forecasts is scheduled to be published.

The decision came shortly before the European Central Bank decided to cut its own interest rate from 1.25% to 1%.

'Going to plan'

There has also been some surprise that the programme has only been extended to 125bn, given that the Treasury has said the Bank of England can spend up to 150bn on quantitative easing.

"It may suggest they're reassured that the recovery is going to plan," Alan Clarke, an economist at BNP Paribas told the BBC.

BBC economics editor Stephanie Flanders said the announcement had been made because the Bank's rate-setters already knew they would be extending the programme, and thought it silly to wait another month to confirm that fact.

There was also, however, a note of caution from the Institute of Directors.

"The MPC is... right to extend its programme of asset purchases beyond the first 75bn, although they will wish to maintain their guard against the risks of overdosing on quantitative easing," its senior economist Peter Patterson said.

The Bank's statement acknowledged that "the world economy remains in deep recession", but added that, "surveys at home and abroad show promising signs that the pace of decline has begun to moderate".

The purchasing managers' indexed showed the pace of the downturn in the manufacturing sector had slowed by an unexpectedly large amount in April while the service sector shrank at its slowest pace since last August.

Also, the Nationwide Building Society said UK consumer confidence saw its biggest rise in two years last month.

THE BBC