LONDON (ShareCast) - The Bank of England has voted to pump an additional £25bn into the economy, taking its quantitative easing programme (QE) to £200bn.
It expects to spend the extra money in three months and will keep the scale of
the programme under review. QE started at £75bn in March, rose to £125bn in May then to £175bn three months later.
The nine-member policy committee, which also kept interest rates at 0.5%, had to consider mostly stronger economic data this week, which may have stopped a more aggressive injection of cash.
It said the global economy has shown signs of recovery and a number of indicators of UK spending and confidence suggest that "a pickup in economic activity may soon be evident".
The Bank added that inflation is likely to rise "sharply" to above the 2% target in the near term due to higher petrol prices and the end of last year's VAT cut.
"On balance, the Committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists," said the central bank.
"That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling."
Britain's services sector grew at its fastest pace in over two years last month and far quicker than expected, boosting hopes the economy will return to growth in the fourth quarter.
Manufacturers have also been busier. The sector expanded at its quickest pace in two-years in October as orders took off, according to CIPS, while the ONS found production rose 1.7% in September.
Builders are still struggling though, with the UK construction industry remaining firmly in recession during October.
Howard Archer, chief UK economist at IHS Global Insight, suspects there may have been significant divisions within the MPC (A050540.KQ - news) over whether or not to extend QE, and by how much due to uncertainty as to the true state of the economy.
"The fact that the MPC decided to limit the increase in quantitative easing to £25bn and to enact it at a slower rate over the next three months suggests that they believe that the economy is on a modest recovery track," he said.
"It may also be that the MPC are trying to gradually wean the economy off Quantitative Easing and are keen not to upset the markets by bringing it to an abrupt halt."
Archer thinks this will be the final extension to QE unless the economy suffers a major relapse in 2010.
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