Despite more than a £100 billion being pumped into UK economy through quantitative easing (QE), little seems to have changed in the credit markets.
Four months on from the Bank of England's efforts to boost the money supply, figures show lending to private firms fell by £4.5 billion between March and April and by a further £300 million between April and May, while growth in lending to households was also reduced.
Since the Bank launched its quantitative easing programme – effectively printing money – in March, the Monetary Policy Committee (MPC) has authorised £125 billion in QE purchases.
However, it is likely to press on with the remaining £25 billion of its £150 billion mandate after the latest assessment of the current financial crisis placed the economy in its biggest slump in more than 50 years during the first quarter of 2009 – a far worse than expected 2.4% decline.
The initial idea behind QE was inject money into the system so as to underpin bank balance sheets and encourage lending in the wider economy.
However, the Bank is also charged with keeping CPI inflation at 2% and its forecasts show it undershooting this target with interest rates at 0.5% and £125 billion of QE.
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