A further £75bn is to be pumped into the economy by the Bank of England to protect it from the euro crisis and avoid it sliding back into recession.
Some £200bn has already been put into the economy through quantitative easing (QE) – buying assets such as government bonds, in an attempt to boost lending by commercial banks.
At the end of the monthly meeting of its interest-rate setting Monetary Policy Committee (MPC) today the Bank announced the further injection – the first since 2009. It follows calls from business leaders to take measures to kick-start the ailing economic recovery.
As expected, the MPC also pegged interest rates at their record low of 0.5%.
Weak economic data has piled pressure on the Bank to commit to a second round of QE over recent days.
Data released yesterday showed the UK economy grew by just 0.1% between April and June, half the 0.2% previously thought.
The move highlights the precarious state of the UK's economy as global growth slows, government spending cuts and tax hikes bite, and consumers face high inflation and slow wage rises.
In a letter to Chancellor George Osborne seeking approval for the move, Bank governor Mervyn King said the global economic recovery was faltering and that the euro debt crisis had created severe strains on financial markets.
"These tensions in the world economy threaten the UK recovery," King wrote.
The CBI said the Bank had acted “promptly” given the risks to the economic outlook.
Its chief economic adviser Ian McCafferty said: “This measure will help support confidence, but we need to recognise that its impact on near-term growth prospects is likely to be relatively modest.
“Only once the turmoil in the eurozone is resolved will confidence be fully restored.”
Paul Knight, region director for EEF, the manufacturers' organisation, said: "Confirmation this week that the economy has barely moved in the past nine months, combined with a patchy set of private sector indicators in the most recent quarter, has put another round of asset purchases firmly back on the table.
"Clearly this isn't going to be a decision the Bank takes lightly and the decision was no doubt finely balanced. That the MPC chose to proceed with another round of QE without sight of third quarter GDP estimates and its latest inflation forecast would indicate that members believed immediate action was warranted in order to head off a deteriorating growth outlook."
