Page last updated at 21:26 GMT, Wednesday, 5 August 2009 22:26 UK

Bank mulls stimulus scheme future

Bank of England
There are mixed signs on whether quantitative easing is working.

The Bank of England is contemplating whether to extend a scheme where it creates money to buy bonds in order to stimulate the economy.

Last month, the Bank's rate setters said it was not planning to extend quantitative easing beyond the current plan to spend £125bn.

But it can increase that by £25bn without asking the Treasury.

Meanwhile, the Bank is widely tipped to hold UK interest rates at 0.5% for the fifth month in a row on Thursday.

Most commentators say it is too early to tell whether quantitative easing is working.

Housing factor

Looking at the evidence to date there's very little sign of its effectiveness
Sunita Bali, senior UK economist at Experian

The Bank of England says the results of the exercise will not be known until at least nine months from the start of the plan, which began in March this year.

Recent economic data may convince the Bank's Monetary Policy Committee not to continue the programme of quantitative easing - if it feels that the economy is showing signs of recovery without taking on further debt.

The Office for National Statistics said industrial production unexpectedly rose 0.5% in June from May, although it is still down 11.1% from last year.

Interest rate graph

Also, a survey from the Chartered Institute for Purchasing and Supply (CIPS) showed the service sector growing at its fastest for 18 months.

Meanwhile, house prices are now rising, according to the latest survey from the Halifax mortgage lender, while recent surveys by Nationwide and the Land Registry also suggested prices increasing slightly.

However, unemployment is still rising, while companies continue to find it difficult to get loans.

Last month's decision to pause and not create more money was criticised by the British Chamber of Commerce, which said the decision was "premature".



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