The Bank of England has announced plans to pump an additional £75bn into the UK economy as part of their asset purchase programme.
This additional Quantitative Easing (QE) will extend the total involved in the programme to £275bn.
At £75bn, the extension is around 50% greater than many economists were predicting.
The programme works by the Bank of England buying assets including government bonds from commercial banks. This aims to provide more cash to the High Street banks, which enables them to lend more to businesses and the public.
It remains to be seen whether this latest move will have the desired result of stimulating economic growth.
The latest revised figures for UK GDP show the economy growing by only 0.1% in the second quarter, down from a previous estimate of 0.2%.
With continued turmoil in the eurozone and indications from other parts of the world of a global economic slowdown, the Bank or Government may need to take more steps to get the British economy growing again.
Whilst the stock market responded positively to the news of further QE, Sterling has fallen in value by 150 cents against the dollar, from $1.545 to $1.53. The yield for a ten-year gilt also fell in response to the news, from 2.36% to 2.26%.
Assuming the gains in investment markets are held beyond the very short term, higher equity and gilt prices will please investors with diversified portfolios who have been suffering recently from equity market falls.
At the same time as they announced the additional QE, the Bank kept interest rates on hold at 0.5%. They have now been at this historic low for 31 months and the outlook is for interest rates to remain at this level throughout next year.
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