Sir Mervyn King: UK Faces Its Most Serious Financial Crisis Ever
Sir Mervyn King has insisted that the Bank of England's surprise move to pump £75 billion into the UK economy is the right thing to do as the country faces "the most serious financial crisis" ever seen.
The Bank's governor was speaking after the Monetary Policy Committee (MPC) voted to boost its quantitative easing (QE) programme - effectively printing more cash - from £200 billion to £275 billion and hold interest rates at 0.5%.
The move, dubbed QE2, is the first change to QE since November 2009 and is the clearest signal yet that the Bank thinks Britain is on the brink of a double-dip recession.
Explaining the committee's reasoning, Sir Mervyn said: "This is the most serious financial crisis we've seen at least since the 1930s, if not ever.
"We're having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy."
Business leaders also welcomed the announcement after figures revealed Britain suffered a deeper recession and is recovering more slowly than first thought.
However, the decision raised fears over the impact on pension funds and some groups warned a surge in the already-high rate of inflation would erode savings.
The value of the pound sank against most major currencies following the announcement, while the FTSE 100 Index closed more than 3% higher, boosted in part by the Bank's decision.
Alan Clarke, UK economist at Scotia Capital, said: "Once again the BoE has made use of its secret weapon - shock and awe. Pretty much everyone expected QE to restart at some point - but it was only a minority view that it would start this soon, or in excess of £50 billion."
The MPC said its members made the decision to boost QE over the next four months because the slack in the UK economy will likely be "greater and more persistent than previously expected". A report by the Bank into the effect of QE on the economy previously found the stimulus measure provided a "significant" benefit to growth.