More cash likely to be pumped in to haul economy from slump

More emergency cash is expected to be pumped into Britain’s economy this week as policymakers seek to cushion the UK from a worsening eurozone crisis.

The Bank of England’s Monetary Policy Committee (MPC) is widely predicted to boost its Quantitative Easing (QE) programme by another £50 billion to £375 billion when it announces the outcome of its latest monthly meeting on Thursday.

It comes after a series of major moves by the Bank and Treasury to kick-start lending and rescue the country from a double-dip recession.

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On Friday, the Bank said rules should be relaxed to free up billions of pounds of cash held on their balance sheets as a so-called liquidity buffer.

This followed the announcement earlier this month of a £100 billion-plus scheme to boost bank lending.

The Bank is working on a new “funding for lending” scheme, while last week it held its first £5 billion monthly auction under a six-month loan facility programme.

The MPC’s two-day meeting begins on Wednesday and comes after a swathe of gloom on Britain’s economy.

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Bank Governor Sir Mervyn King said last week he was shocked at the pace at which economic conditions had worsened as he unveiled the biannual Financial Stability report.

Official figures also showed the double-dip recession was deeper than originally feared as revised figures revealed a sharper decline in the economy in the final quarter of last year, when gross domestic product (GDP) shrank by 0.4 per cent between October and December, compared with a previous estimate of 0.3 per cent.

This was followed on Friday by grim data which showed the all-important services sector, which accounts for some 75 per cent of the economy, failed to grow between March and April.

Minutes of the June rates meeting showed four of the nine-strong committee – including Sir Mervyn – were narrowly outvoted on more QE. Against this backdrop, economists believe this month’s will see the committee agree on extending it.

However, the Bank is not expected to cut interest rates below their current historic low of 0.5 per cent, despite a predicted rate cut by the European Central Bank on the same day.

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