The Bank of England’s Monetary Policy Committee yesterday voted to increase its Quantitative Easing (printing money) programme by £50bn to a total of £325bn, and to maintain the Bank Rate at 0.5 per cent.
In a statement the Bank warned: ‘In the United Kingdom, the underlying pace of recovery slowed during 2011, with activity falling slightly during the final quarter.’
It added that ‘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.’
It said that ‘the drag from tight credit conditions and the fiscal consolidation together present a headwind. The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist.’
Commenting on the Bank’s decision, TUC general secretary Brendan Barber said: ‘Holding interest rates and resuming quantitative easing is the right thing to do given the weak state of our economy.
‘But more needs to be done to ensure that this latest injection of cash actually reaches the businesses that need it, rather than just gathering dust on banks’ balance sheets.
‘The failure of banks to increase net lending to businesses, despite £275bn of quantitative easing, is holding back growth in the real economy.
‘The Chancellor needs to exert more influence in forcing banks to lend and get credit easing up and running given the failure of his Project Merlin deal.’
Howard Archer, economist at IHS Global Insight, predicted: ‘We doubt that the Bank of England is done yet on Quantitative Easing and expect another £50 billion dosage in May which would take the total up to £375bn.’
Earlier in the week, City accountants Ernst and Young warned that bank lending will contract by 2.2 per cent.
It said: ‘After expanding by an estimated 4.3 per cent in 2011, the ITEM Club expects total bank loans to contract by 2.2 per cent in 2012, with just 0.9 per cent growth forecast in 2013.’
Meanwhile, further QE will hit pensions. National Association of Pension Funds’ Joanne Segars said: ‘Retirees who get locked into a weak annuity will find that the Bank’s money printing leaves them out of pocket for the rest of their lives.’
She added: ‘Our fear is that firms struggling with a weak economy will simply choose to close their pension schemes.’