Member Article

BoE expected to unveil £200bn economic stimulus

The Bank of England is set to unveil a £200 billion economic stimulus package by printing more money and relaxing financial regulations.

The Banks decision to tap reserves of cash and liquid assets could help to inject as much as £150 billion for new lending - a figure equivalent to all UK SME business loans.

A further £50 billion of quantitative easing is also expected to be unveiled this week by rate-setters at the Bank’s Monetary Policy Committee, as the Eurozone crisis and the recent sharp fall in energy prices has made it easier to justify.

The increase in Quantitative Easing would be another attempt by the bank to try and restore growth and end the recession.

The bank’s Governor Mervyn King laid out plans for a “funding for lending” plans, which the Treasury hopes would deliver up to £80 billion of extra credit into the economy.

Lenders are currently holding around £500 billion of liquidity, 30% more than “regulatory guidance”, according to the FSR. Banks must now be willing to use these buffers, which according to the FSR, “could support additional lending to the real economy … [and] potentially enhance the efforts of the MPC to stimulate the economy”.

The Bank of England is also considering reducing minimum guidance levels, which help lenders access £160 billion of emergency state-backed liquidity, which would further increase the fund available for lending.

To support further lending, banks are now being encouraged to boost capital buffers by conducting more debt-for-equity swaps and by issuing new equity or “contingent capital instruments”.

Since 2009 banks have been withdrawing money from the economy, leading pension funds and insurance companies to emerge as “non-bank” lenders. providing £16 billion of traditional loans over the past five years.

This was posted in Bdaily's Members' News section by Ruth Mitchell .