BoE's £50 billion cash injection reflects looming crisis: report
09 May 2009
The Bank of England is bracing for a third wave of the financial crisis with its £50-billion (about $75 billion) cash injection, the Guardian newspaper reported on Saturday.
The UK centrl bank on Thursday said it would expand its asset purchase programme by £50 billion to 125 billion pounds.
''The increase in quantitative easing was driven by fears in Threadneedle Street that the credit crunch is still sucking the life out of the British economy and the banking sector remains in deep trouble", the report said.
So far, the central bank has bought about 54 billion pounds of assets, the majority of which were government bonds, and is on track to spend 75 billion by June.
Meanwhile, the central bank left interest rates at a record low of 0.5 per cent.
Mervyn King, governor of the Bank of England, and several other members of the bank's Monetary Policy Committee (MPC) are said to be unconvinced by talk of green shoots that have helped propel the FTSE 100 share index by more than 20 per cent in the past month.
According to Guardian, BoE officials are concerned that big banks, which are now supported by the taxpayer, such as the Royal Bank of Scotland and Lloyds Banking Group, are struggling to increase lending volumes, as they had promised in return for help from the government.
Stephen Hester, the chief executive of Royal Bank of Scotland yesterday said that there is little evidence that Britain's ailing economy is stabilising.
RBS yesterday said the bank had lost £857 million in the first three months of the year
The Bank of England is also worried that continued stresses in the global financial system will suck money out of the UK as cash-starved international banks send money home.
King will present the MPC's latest quarterly inflation report next Wednesday and speculation is rife the report will contain gloomy forecasts for economic growth and inflation, which will probably be projected as being below the 2 per cent target in two years' time, even though it currently stands at 2.9 per cent.
The central bank has cut interest rates by 4.5 percentage points since October last year in order to pull the British economy out of recession as soon as possible.
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The central bank acknowledged in a statement that ''the world economy remains in deep recession'' but that "surveys at home and abroad show promising signs that the pace of decline has begun to moderate."
