Page last updated at 16:45 GMT, Sunday, 22 February 2009

UK may get cash injection 'soon'

Bank of England
The Bank of England could help increase the flow of money

A government minister has suggested that plans to inject more cash into the economy could happen "quite soon".

Treasury Secretary Stephen Timms told the BBC the government and the Bank of England were in talks regarding so-called quantitative easing.

Quantitative easing effectively allows the central bank to write cheques to banks in exchange for assets.

The hope is that this would encourage banks to lend to consumers, who would spend more, helping economic recovery.

This method is seen as a way to help the economy, as the benefit from lowering interest rates is seen to be diminishing.

WHAT IS QUANTITATIVE EASING?

Traditional 'QE' involves buying just government securities, or gilts. However, the MPC will be looking to buy high quality corporate securities as well

Stephanie Flanders, BBC economics editor

As the world economy cools, and access to credit remains expensive or hard to obtain, UK policy makers have been looking at different ways to encourage the banks to lend again.

Earlier this month the central bank opted to lower interest rates to 1% from 1.5%, marking the fifth cut since October.

But many analysts say cutting interest rates now will not be enough to get the economy back on track and that the main challenge is how to get banks to lend again.

Quantitative easing was pioneered by Japan as a way of battling its deflationary problems in the 1990s.

But deflation - where prices regularly fall rather than rise - becomes a greater risk as interest rates head towards zero.

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