Bank of England pumps billions more into economy

LONDON (AFP) - – The Bank of England revealed plans Thursday to pump another 25 billion pounds (28 billion euros, 41 billion dollars) to boost the recession-hit British economy, and held interest rates at a record low.

The central bank's policymakers decided to lift its quantitative easing (QE) programme to a total of 200 billion pounds, amid concern that Britain is mired in its longest recession since records began in 1955.

"The BoE's Monetary Policy Committee today voted to maintain the official bank rate paid on commercial bank reserves at 0.50 percent," the central bank said in a statement.

"The committee also voted to continue with its programme of asset purchases financed by the issuance of central bank reserves and to increase its size by 25 billion pounds to 200 billion pounds," it added.

Shortly after the decision, the European Central Bank announced that it was holding eurozone borrowing costs at an all-time low of 1.0 percent.

The US Federal Reserve said Wednesday it was holding rock-bottom American interest rates for "an extended period" and kept its trillion-dollar stimulus measures in place to support a fragile US recovery.

Under QE, the Bank of England buys bonds from commercial institutions to try and boost lending to businesses and individuals, in an attempt to help guide the economy out of a deep downturn.

The bank added Thursday that there were encouraging signs that Britain was experiencing a tentative recovery.

"In the United Kingdom, output has fallen by almost six percent since the start of 2008," the BoE said.

"Households have reduced their spending substantially and business investment has fallen especially sharply.

"GDP continued to fall in the third quarter. A number of indicators of spending and confidence, however, suggest that a pickup in economic activity may soon be evident."

Official data showed last week that British gross domestic product (GDP) unexpectedly slumped 0.4 percent between July and September, from a fall of 0.6 percent in the second quarter, confounding expectations for a return to growth.

Thus far, Britain has failed to join France, Germany, Japan and the United States in exiting recession -- defined as two consecutive quarters of negative growth -- after the worst global downturn since the 1930s.

Economists said that the smaller-than-expected increase in asset purchases showed that the BoE hopes that economic recovery will soon take hold. Some analysts had forecast an additional 50 billion pounds.

"The slower pace of purchases reflects that the Committee has put weight on indicators suggesting that activity will soon pickup," said Fortis economist Nick Kounis.

He added: "We think that this is the last instalment of the QE, reflecting our view that a significant economic recovery will take shape in the coming months."

The bank also said Thursday that it would take three months to complete the additional asset purchases, while the scale of the programme would be kept under review. It also noted mounting signs of a global economic recovery.

"The world economy has shown signs of recovery, with a number of emerging market economies experiencing a strong rebound in growth, although global activity as a whole remains significantly depressed," the BoE said.

"Asset prices have risen internationally since the spring, reflecting both the gradual improvement in the economic climate and accommodative monetary policies.

"And banks' funding conditions have improved, though financial conditions remain fragile."

The BoE had launched its QE policy back in March, when it also slashed interest rates to the current record low.