12 Mar 2009

BoE pumps 2 billion pounds into economy

10:56 am on 12 March 2009

The Bank of England has effectively begun printing money to pull the British economy out of recession.

It bought Stg 2 billion pounds of government bonds on Wednesday in a move known as quantitative easing.

It is the first part of a Stg 75 billion pound programme of asset-buying.

Banks, which have buying government bonds since the BoE announced last week it was to start buying assets with newly-created money, offered to sell Stg 10.5 billion pounds of gilts to the BoE.

It has the leeway to spend Stg 150 billion pounds in new money on assets if it deems it necessary.

The Bank of England has already cut rates to a record low of 0.5% in response to a sharp downturn.

The bank hopes that by buying bonds it will make it cheaper for companies to borrow on the capital markets. Meanwhile, institutions that have sold gilts to the BoE, will have extra money to lend.