Bank of England eyes rate cut and £50bn cash injection to boost economy

The Bank of England is preparing to inject £50bn into the economy to provide a growth boost, and is also contemplating cutting interest rates, amid fears of a global slump.

According to a report in the Sunday Times newspaper, economists are now pricing in £50bn of quantitative easing this week, while there is mounting speculation that the record low interest rate of 0.5% could be cut to 0.25%.

The clamour for a rate cut has been growing in some quarters after the latest wave of bad news from Europe and the US, where data is declining sharply.

The US unemployment rate unexpectedly climbed last week, rising to 8.2%, while in Europe the eurozone crisis is far from resolved, with German bond yields tumbling to new record lows last week as Spain’s hit record highs.

In the UK, where the economy is already officially back in recession, the picture is also bleak.

On Friday, the latest PMI survey for the manufacturing sector – an area the government had hoped would lead the country out of recession – showed one of the largest falls in activity for 20 years, hitting a three-year low.

While a rate cut has been backed in some quarters, other economists have questioned how effective it would be, warning it will impact banks’ balance sheets further at a time when they are still weak.

 

This article was first published on Investment Week

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