Bank of England ‘unanimous’ over pumping extra £75bn into economy

Available indicators suggested that the rate of growth had slowed down and would be “close to zero” in the fourth quarter, minutes from the October meeting of the Bank’s Monetary Policy Committee (MPC) said.

MPC members considered injecting a further £100 billion into the economy but all nine members settled on increasing the quantitative easing (QE) programme from £200 billion to £275 billion. The committee voted unanimously in favour of holding interest rates at historic lows of 0.5%.

Bank governor Sir Mervyn King last night defended the Bank’s decision to boost QE despite inflation hitting a three-year high in September, reassuring that the cost of living would fall back sharply next year.

Sir Mervyn warned last night that “time is running out” to solve the eurozone debt crisis and urged countries to work together in solving the economic woes.

The Bank’s fears that the economy will hit zero in the fourth quarter follow a weak performance this year, with gross domestic product (GDP) growing at 0.1% in the second quarter. Official figures for the third quarter will be published on November 1.

High inflation and lacklustre growth come at a time when average wages are growing at just 1.8% a year and unemployment is at a 17-year high of 2.57 million.

But the Bank expects the slovenly growth and low demand to pull prices down, with inflation sliding back towards the Government target of 2% in the medium term.

The minutes said tensions in the world economy, particularly the eurozone debt crisis, had placed severe strains on bank funding, battered consumer confidence and threatened the UK recovery.

The squeeze on household incomes and Chancellor George Osborne’s austerity measures are likely to continue to restrict spending, the minutes added.

The committee considered putting the decision to boost QE off until next month, when the background could be explained more fully in its quarterly inflation report.

But the MPC decided the advantage of delay was insufficient to outweigh the arguments for immediate action, the minutes said.

The size of the QE injection could depend on how developments in the eurozone and on financial markets pan out, the minutes added, and could be boosted or reduced.

The documents alluded to a Bank report into the effect of the first round of QE, which found the stimulus measure helped gross domestic product increase by around 1.5% to 2%.

The MPC said there was no strong reason to expect the impact of further QE would be any different.