The Bank of England set the money press rolling again on Thursday, saying it will pump another 50 billion pounds into the economy to bolster a fragile recovery and shield Britain from fallout from the unresolved euro zone debt crisis.
The bank's decision to print more money to buy government bonds comes despite signs Britain may avoid slipping back into recession and fresh hopes that a deal for debt-ridden Greece will forestall euro zone turmoil. "Some recent business surveys have painted a more positive picture and asset prices have risen," Bank of England Governor Mervyn King said in a letter to finance minister George Osborne, explaining the decision.
"But the pace of expansion in the United Kingdom's main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries," he added. The cash boost was welcomed by the government, which has come under pressure again to loosen its austerity drive after the economy shrank at the end of 2011 and unemployment hit its highest level in more than 17 years.
Osborne said the central bank's loose monetary policy continued to play a "critical" role in supporting the economy as he continued his austerity programme, and remained the main tool to respond to changes in the outlook. Other global central banks are taking action to boost their economies, too. The European Central Bank kept rates at a record low 1 percent on Thursday, and the US Federal Reserve is close to deciding whether to launch a third round of its own quantitative easing programme. A Reuters poll after the BoE decision showed economists expect the bank to make one last foray into bond markets to buy gilts before it finally shuts down the printing presses.
Britain's recovery from a deep slump during the 2008-2009 financial crisis has been weak so far, and the contraction of the economy in the final quarter of 2011 stoked fears of a renewed recession. The central bank said inflation would have probably fallen below the target of 2 percent over the medium term without further easing, as a significant amount of unused capacity in the economy and unemployment was bearing down on prices.
Inflation fell from the three-year peak of 5.2 percent in September to 4.2 percent in December, and policymakers have voiced confidence that it will dip below the BoE's 2 percent target later this year, as predicted in November.