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Bank of England moves for pumping extra cash into the economy

23 February 2009 07:57 (UTC +04:00)

Bakuâ€“ APA-Economics. Mervyn King, the Governor of the Bank of England, has met Chancellor Alistair Darling to request the unprecedented step of pumping extra cash into the economy.
Mr King Mr Darling discussed of increasing the quantity of money flowing around the system after the Bank’s policymakers admitted that recent rate cuts were proving ineffective in tackling the deepening recession.
Economists suggested that the move â€“ known as quantitative easing â€“ could be made within weeks in a bid to get people spending again.
t follows consecutive cuts in interest rates by the Bank of England, with the most recent made earlier this month when the Bank Rate was cut by 0.5 percentage points to 1 per cent.
A spokesman for the Bank of England said: "The Governor has had meetings with the Chancellor and formally communicated the MPC’s wish for authority to conduct purchases of Government and other securities financed by the creation of central bank money."
The bank refused to comment on when the meetings took place but said it was after the most recent MPC meeting earlier this month.
Analysts suggested the Bank Rate will be cut again next month, but added that it is unlikely to go all the way to zero per cent after the MPC minutes revealed that this could hurt banks’ profitability.
Simon Hayes, economist at Barclays Capital Research, said: "The minutes make it crystal clear that quantitative easing is imminent."
And George Buckley, chief UK economist at Deutsche Bank, said: "The minutes make it almost certain the Bank of England will expand the money supply, purchasing gilts and other securities at the next MPC policy meeting on March 5."
The minutes revealed: "Increasing the supply of central bank money in the economy through additional purchases of government securities should raise private sector spending.
"It seemed unlikely that the inflation target could be met solely by cutting Bank Rate."
The consumer prices index, the Government’s preferred measure of inflation, dropped less than expected last month to 3 per cent, according to figures released by the Office for National Statistics.
Economists said that two votes can be expected by the committee each month - one to decide the Bank Rate and another to agree on the scale of unfunded asset purchases.
Committee member David Blanchflower voted against cutting the Bank Rate by 0.5 percentage points earlier this month, instead opting for a reduction of 1 percentage point.
Philip Shaw, an economist at Investec, said: "There does seem to be a risk that the committee will not bring the Bank rate down any further and rely solely on quantitative easing for further monetary stimulus. However on balance the temptation for a further rate cut will probably prevail."