Bank of England plans £50-bn stimulus to prop up economy

The Bank of England launched a third round of monetary stimulus on Thursday, announcing it would restart its printing presses and buy £50 billion of asset purchases with newly created money to help the economy out of recession.

The move was widely expected after BoE governor Mervyn King said last month the economic outlook had deteriorated since the BoE called a halt to its second round of asset purchases — also known as quantitative easing - in May.

Against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term, the BoE said in a statement.

The BoE has bought £325 billion of government bonds to date, and the purchases announced on Thursday take this total to 375 billion. They will be spread over four months - longer than many economists expected, and a minority had expected the BoE to conduct £75 billion of purchases.

Gilt futures — which had rallied in the run-up to the decision — fell by more than 30 ticks to hit a session low after the data. Sterling rose versus the dollar. The BoE has chosen to give the ailing UK economy a further shot in the arm, adding to its asset purchases in the light of recent disappointing economic data and a gloomier-looking economic outlook, said Chris Williamson, an economist at financial data company Markit.

Although Greek elections last month avoided a worst-case outcome of a government vehemently opposed to the country's bailout, the euro zone debt crisis continues to fester and is increasingly weighing on the global economy.

The European Central Bank is widely expected to cut interest rates when it announces its policy decision at 1145 GMT, although the BoE kept its interest rate on hold at 0.5%, where it has been since March 2009.

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