In a bid to encourage banks to lend to consumers and businesses the Bank of England has expanded its quantitative easing programme by another £25bn. The extra money is being given to help support more spending in the economy. The initiative, which was introduced in March 2009 is believed to now total £125bn.
Interest rates have been kept at 0.5 per cent and instead of lowering the bank rate the Bank of England will now supply extra money directly through the quantitative easing scheme. Rather than printing more bank notes the bank pays for these assests by creating money electronically and crediting company accounts where it has purchased assests.
CBI chief economic advisor, Ian McCafferty has said the economy and credit conditions are still weak and the Bank of Englands extension is necessary because it is still to early to determine the effects of the initiative on the wider economy. McCafferty believes a clear communication of the banks intentions is “critical in order to prepare the markets”.