Business groups had been pressuring the bank to extend the £200 billion programme it first launched in March 2009, as growth in the UK slows and sovereign debt concerns in the eurozone weigh heavy.
“The pace of global expansion has slackened, especially in the United Kingdom’s main export markets,” the bank said in its statement. “Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.”
On Wednesday, the Office of National Statistics had revised the UK’s growth figures down from a projected 0.2 per cent for the quarter to 0.1 per cent.
Analysts and economists had been expecting some form of additional QE, with most projecting that £50 billion would be released by November, after the September minutes of the bank’s monetary policy committee (MPC) showed that the consensus around holding back on more easing was weakening.
The release of £75 billion may suggest that the bank is more concerned than ever about the possibility of a sovereign event in the eurozone. The protracted eurozone crisis, and concerns that a sovereign default in Greece would cause other dominoes to fall and a rolling banking crisis engulfing the UK weigh heavy on markets and on businesses, who are struggling to obtain credit from banks worried about their capital levels.
The BoE has also changed its view on domestic growth drivers. Previously, the bank had indicated that the UK’s growth slowdown was due to “temporary factors” including the tsunami in Japan and the unusually large number of bank holidays around the Royal Wedding.
“In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses,” the Bank said on Thursday.
Business groups, which had been calling for a stimulus, welcomed the move.
Ian McCafferty, chief economic adviser to the Confderation of British Industry, said: “With the risks to the economic outlook increasing, the MPC has acted promptly by extending quantitative easing this month. This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest. Only once the turmoil in the eurozone is resolved will confidence be fully restored.”
Graeme Leach, Chief Economist at the Institute of Directors, said: “What did we want? More QE. When did we want it? Now. Near zero GDP and money supply growth made a compelling case and the Bank of England was right to launch QE2. It could be argued that the Bank of England was slow to introduce QE the first time, but thankfully it hasn’t made the same mistake twice.”
“It is evident that the MPC are becoming ever more concerned over the current weakness of the economy and the deteriorating domestic and global growth outlook,” Howard Archer, chief UK and European economist at IHS Global Insight said ahead of the meeting. “The MPC are also worried about the weakness and volatility of the markets, and the funding conditions for banks.”