The Bank of England Monetary Policy Committee yesterday cut interest rates from one per cent to a record low of 0.5 per cent.
Interest rates have now been reduced six times since October.
At the same time Bank governor Mervyn King revealed he had exchanged letters with Chancellor Darling on February 17 to get authorisation to print money.
King said the Bank would buy £75 billion of banks’ assets to expand the money supply under ‘quantitative easing’ measures.
Darling authorised King to purchase assets by ‘creating’ a total of £150 billion.
The Bank said the likely majority of purchases over the next three months would be of gilts (UK government bonds) at medium and long maturities.
The price of gilts soared on the London Stock Exchange on the announcement, with the June future rallying more than 2.5 full points, while sterling fell against the dollar.
The policy is intended to encourage the banks to lend more freely to businesses, and in turn stimulate economic growth.
Commenting on the Bank’s decision, TUC Head of Economic and Social Affairs Adam Lent said yesterday: ‘Today’s rate cut and the start of quantitative easing are both welcome, but can only be part of the response we need to counter the recession.
‘There are now diminishing returns from rate cuts.
‘Quantitative easing will only work if it injects cash into the economy – it must not disappear into bank balance sheets like so much of the money spent so far on bailing out the banks.
‘But it is government, not the Bank, that must take the lead in fighting the recession.
‘When the private sector stops spending, the public sector must fill the gap with the kind of state-led stimulus and investment that is taking place in the US.
‘This will ensure a fairer and greener economy when we emerge from recession.’
Adrian Coles, director general of the Building Societies Association said: ‘Today’s decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further.’
The Council of Mortgage Lenders (CML) director general Michael Coogan said: ‘This latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further.’
• Jaguar Land Rover (JLR) workers have voted to take a one-year pay freeze and move to a four-day week in return for a pledge of no compulsory redundancies for two years.
In a ballot of 15,000 Unite and GMB trade union members, a total of 70 per cent accepted the deal which will save JLR £70 million a year.
There will also be no bonus payments for 2,400 employees, which had been planned for this year.
A joint statement by Unite and the GMB said they did not want their members at JLR to ‘face the same fate as thousands of others’.
• Insurance giant Aviva’s share price fell by 30 per cent after it posted a net loss of £885m for 2008, after a profit of £1.5 billion.
Aviva said it would be maintaining its dividend to shareholders.
Billions of pounds were wiped off the London Stock Exchange with the FTSE 100 falling over 100 points early afternoon before recovering 15-20 points as other insurance share prices fell.