After July’s meeting on Thursday, the BoE announced historically low interest rates would be held at just 0.5% and that they would be injecting another £50 billion into a struggling economy. This comes at a time when the UK is already in a double dip recession and fears are growing that the recession will continue for yet another quarter or perhaps be upgraded to a full-blown recession in the months to come.
The Monetary Policy Committee acted after the Bank’s Governor, Sir Mervyn King, stated in previous days that he was in shock over the state of financial affairs in Britain and how they had degenerated continually within the past half year. This was revealed during the twice-yearly Financial Stability Report which had been made public the previous week.
According to economists, the UK economy is continuing to shrink and perhaps in the best case scenario, remains flat as of the second quarter of 2012. This would mean that the final quarter of last year as well as the first two of the current year have been mired in recession and does not bode well for prospects in the near future. Although there is no actual way to define a ‘depression’ which can be agreed upon within the UK or in other countries, it is generally labeled as such when a country sustains a recession for at least two years in a row.
Even so, this new round of QE is not expected to provide great yields but may boost confidence a bit. The Deputy Director General of CBI states that the UK should also consider alternatives such as investing in “high grade corporate paper and bank bonds.” He further contends that although this isn’t the final solution, it will give a boost to some businesses during this difficult time.
