BoE pumps in extra £50 billion for asset purchases

The Bank of England (BoE), UK's central bank, decided yesterday to extend its asset purchase programme by £50 billion ($84 billion) to £175 billion from £125 billion, in order to tide over the continuing economic recession, though there have been increasing signs that the country's main export markets are stabilising.

BoE's Monetary Policy Committee also voted to keep the official bank rate unchanged at 0.5 per cent.

The committee noted that banks' funding conditions have improved a little, although financial conditions remain fragile. Household and business confidence has started picking up from the bottoms touched in the second half of 2008 in the wake of the global economic crisis.

The bank stated that recession in the UK appears to have been deeper than previously thought. The country's gross domestic product (GDP) fell further 0.8 per cent in the second quarter of 2009, compared with a decrease of 2.4 per cent in the first quarter. The decline in output was due to decreases in all component aggregate series.

Although the pace of contraction has moderated, and there are signs that credit conditions may have started to ease, lending to business has fallen and spreads on bank loans remain elevated.

The Consumer Price Index (CPI) annual inflation dropped to 1.8 per cent in June, down from 2.2 per cent in May, a little below the 2-per cent target set by the central bank. This is primarily due to lower food and energy prices, though weakening of the currency put upward pressure on inflation.