The Bank of England’s Monetary Policy Committee has kept base rate at 0.5% for the fifth month in a row, and extended its programme of quantitative easing to £175bn.

The Bank had previously earmarked £125bn to spend on buying up bonds to boost the money supply.

But today’s decision boosts the programme by £50 billion to £175 billion.

The Bank says that the world economy remains in recession, and despite signs output in the UK’s main export markets is stabilising the UK recession appears deeper than first thought.

The MPC says that in order to keep inflation on track to meet the 2% target keeping the base rate as it is was the most appropriate action.

It expects the announced programme to take another three months to complete and says it will keep the scale of the programme under review.

Prior to today’s meeting the Bank governor Mervyn King and the chancellor Alistair Darling exchanged letters about the expansion of the Asset Purchase Facility, commonly known as quantitative easing.

The Treasury previously had set a limit of £150bn to spend on buying up bonds, but has now authorised the higher limit of £175bn.

Ben Thompson, director of mortgages at Legal & General, says: “The Bank has not yet put its cheque book back in the drawer, having already comfortably outspent Manchester City 100-1.

"While Mark Hughes of Man City will want instant results on the pitch, King will be looking more for a steady turnaround at a manageable pace.

"Is there a risk, however, that the asset purchase programme has gone too far and will stoke the fires of inflation too much in coming years?

"Longer term fixed rate mortgages are already pricing in big rate rises to come over the next five years. Let’s hope that the quantitative easing catapult doesn’t fling us too high.”

And Ray Boulger, senior technical manager at John Charcol, adds that the comment in the MPC’s statement that, “in the United Kingdom, the recession appears to have been deeper than previously thought” is also highly relevant.

He says: "As far as the mortgage market is concerned there is little evidence that the QE programme has resulted in any additional lending so far, but it is, of course, entirely possible that without QE mortgage lending would have been even more dire.”

Posted 29/08/2009 12:59:13