The recent assurance from Gordon Brown that Britain will enter recovery by the end of this year looks more likely to materialise, after the Bank of England extended their quantitative easing (QE) programme by a further £25bn.
They have already spent £175bn on QE, effectively printing money to buy assets and improve the flow of money within the economy.
The announcement today means they will be spending another £25bn over the next three months. This is a slower rate of spending than before and could signal a gradual reduction in this stimulus.
QE is a potentially dangerous strategy.
Spend too much and we could get thrown into hyper-inflation as the money pumped into the system pushes up the overall cost of goods and services. Spend too little and Britain could continue to fall behind other world economies, remaining in a prolonged recession.
At face value the announcement made today seems fairly balanced and could signal the beginning of the end for the QE strategy. It will be interesting to read their minutes, when published, to get a bit more detail on the various views held by the Committee.
The other news from the Bank of England today was interest rates kept on hold at 0.5%. This was widely predicted and is the eighth month in a row they have remained at this historic low.
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