Britain pumps more cash into economy

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Steve Chiotakis: The Bank of England held its key interest rate at a half a percent today. And the European Central Bank has just announced it will maintain its interest rate at an all time low of one percent. The real focus today is on Britain’s decision to increase the amount of cash it’s pouring into the nation’s economy. From London, Christopher Werth has more.

Christoper Werth: Economists sometimes boil this down to the government printing more money. What really happens is banks are able to purchase public and corporate bonds to increase the amount of money floating around in the economy. The Bank of England has already injected over $200 billion into the system. Now it’s decided to increase that program by adding nearly $85 billion to its arsenal. The question now is: Is it worth it?

Andrew Clare is with London’s Cass Business School. He says banks haven’t been turning around and lending that money as much as officials would like, but says the U.K.’s economy would be much worse off without it.

ANDREW CLARE: The reason why we’re seeing green shoots is because we’re pumping huge amounts of cash into the system, interest rates are effectively at zero, and you’re almost bound to get some sort of dead cat bounce in various sectors of the economy with that, in particular the housing market.

Clare says this so-called quantitative easing can’t last forever. He says some hard decisions will eventually have to be made on raising interest rates to control inflation, which could cause those green shoots to whither.

In London, this is Christopher Werth for Marketplace.