Bank Gives £75 Billion Boost to Flatlining Economy

Bank Gives £75 Billion Boost to Flatlining Economy

16:03 PM, 6th October 2011, About 13 years ago

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"31 months of 0.5% interest in a row"

Interest rates are to stick at 0.5% for another month as the Bank of England tries to revive the flatlining economy with another £75 billion of quantitive easing.

The decision by the bank’s monetary policy committee leaves the official interest rate at the record low level for 31 months in a row.

Effectively, triggering a new round of quantitive easing will have the same effect as dropping interest rates and calming inflation.

But the bank warns the cost of living is set to get worse before savers and spenders see any improvement.

“Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices,” said the statement.

“But domestically generated inflation remains contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.”

The bank also fears the sluggish economy will drag down the economy next year, pushing inflation below the target 2%.

“The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses,” said a statement from the bank.

Inflation rose to 4.5% in August due to the continued effect of January’s rise in VAT to 20%, higher energy prices and the increasing cost of imports due to currency rate fluctuations.

John Walker, the Federation of Small Businesses chairman, said: “With growth revised downwards, pumping more money into the economy through quantitative easing is welcomed.

“However, it is important that in an attempt to boost short-term demand that small businesses can directly benefit from this cash injection and that the banks use it to decrease the cost of credit and to increase the availability of lending.”

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