Quantitative easing rise expected

While other countries have begun to emerge from recession, recent shock figures showed a decline in the UK economy between July and September, leading experts to expect the Bank's quantitative easing (QE) programme will be increased.

Interest rates are almost certain to stay at their record low for some time, but the QE scheme to boost the money supply could be extended from its current £175 billion level to reach up to £225 billion, according to economists.

The prediction is partly based on the disappointing 0.4% third-quarter fall in UK output, which surprised markets expecting a technical end to the recession and was the sixth consecutive quarter of contraction.

Uncertainty over the impact of QE also grew recently after the latest figures showed a 0.9% decline in the Bank's preferred measure of money growth last month.

Other major economies - including the US, France and Germany - have left the UK behind as they shrugged off their economic slumps, putting further pressure on officials to come up with additional measures.

An indication that the Bank may boost QE comes from the meeting of the Monetary Policy Committee (MPC) three months ago in which some members - including Bank of England governor Mervyn King - called for the programme to be extended.

Howard Archer, of IHS Global Insight, said: "It is a stone dead certainty that interest rates will stay at 0.5%, but there could well be fireworks amid significant divisions within the MPC over whether or not to further extend the Bank of England's QE programme - and if so, by how much?"

He said the contraction in the economy "tips the odds in favour" of an extension by at least £25 billion, but possibly up to £50 billion.

David Kern, chief economist at the British Chambers of Commerce (BCC), said: "Disappointing economic developments reinforce the case for immediately raising the QE stimulus to at least £200 billion, with the option of an additional increase to £225 billion next month. Every effort must be made to bring the recession to an end. The current situation - in which our economy is still declining while other countries are already growing - entails serious dangers and must not be allowed to continue."