£75bn QE2 and what it all means

The Bank of England has increased its quantitative easing programme by a more than expected £75bn in a bid to kick-start the UK’s ailing economy amid fresh fears about the country's stalling recovery amid an escalation of the eurozone debt crisis.

This additional amount of Quantitative Easing (QE) extends the total involved in the programme to £275bn. The £75bn is around 50% greater than many economists were predicting.

Citing its reasons to pump more money into the economy, the Bank said the pace of global expansion had slackened, particularly in the UK's export markets. It also pointed to "vulnerabilities" in the indebtedness of eurozone counties.


A central bank implements quantitative easing by purchasing financial assets from banks and other private sector businesses with new electronically created money. This action increases the excess reserves of the banks, and also raises the prices of the financial assets bought, which lowers their yield.

The main aim of this is to make available more money to the High Street banks, which should enable them to lend more money to businesses and the public.

Revised figures show the UK economy managed just 0.1% growth in the second quarter - against a previous reading of 0.2% - whilst first quarter growth was revised down to 0.4%.

It remains to be seen whether this latest move will have the desired result of stimulating economic growth although the stock market has responded positively to the news of further Quantitative Easing.

If these gains in investment markets are maintained beyond the very short term, higher equity and gilt prices will be good news for investors with diversified portfolios who have been suffering from recent equity market falls and the uncertainty of the eurozone debt.

The Bank kept interest rates on hold at 0.5%. They have now been at this historic low for 31 months and the outlook is for interest rates to remain at this level throughout next year.