Bank set to slash rates further (From Middlewich Guardian)

Bank set to slash rates further

11:14am Thursday 5th March 2009

© Press Association 2009

The Bank of England is set to slash interest rates to another all-time low and announce plans to pump newly-created money into the ailing economy.

Rate-setters on the Bank's Monetary Policy Committee (MPC) are likely to vote to begin "quantitative easing" (QE) - effectively printing money - to drag the UK out of recession.

With borrowing costs also set to fall to 0.5% after a sixth successive month of cuts, the Bank is now pulling out all the stops to stave off a prolonged slump.

Chancellor Alistair Darling is expected to give the go-ahead for the Bank to create up to £150 billion, according to reports this week.

Anxious banks are still reluctant to lend despite rates at all-time lows so the Bank is resorting to increasing the money supply to boost the economy.

The Bank will create the money to buy Government and corporate bonds through its Asset Purchase Facility (APF).

In an exchange of letters with Bank Governor Mervyn King, the extent of the QE facility and the size of the initial purchases is likely to be revealed.

The MPC is in unknown territory and likely to proceed cautiously but economists are impatient to find out the details around the new policy.

"Within a regime that has prided itself on its transparency, it seems rather extraordinary that we are going into an MPC meeting without any clarity on these important issues," Barclays Capital economist Simon Hayes said.

Whether QE will work depends on the extent to which struggling banks pass on the extra funds created by the Bank of England.