The Bank of England set about printing more money yesterday, announcing plans to pump another £50bn into the country's ailing economy in an attempt to avert a second recession.
The Bank's Monetary Policy Committee voted to increase its quantitative easing programme over the next three months, taking the size of its asset purchase programme from £275bn to £325bn.
Explaining its decision, the MPC conceded that business surveys show an unexpectedly healthy economic picture, but warned that the "weak outlook for near-term growth means that a significant margin of economic slack is likely to persist".
David Cameron welcomed the decision, saying it was the "right answer". The Prime Minister said: "We have a tight and robust fiscal policy of getting our deficit down, of making reductions in public spending."
Labour seized on the announcement, pointing to the Chancellor George Osborne's highly critical attitude to quantitative easing when he was in opposition in 2009. "Printing money is the last resort of desperate governments when all other policies have failed," Mr Osborne, pictured, said in January that year, adding two months later: "It is an admission of failure and carries considerable risk."
Yesterday he supported the Bank of England's decision. "Monetary policy continues to have a critical role in supporting the economy as the Government delivers on its commitment to fiscal consolidation and it remains the primary tool for responding to changes in the economic outlook," he said.
The Bank said that tight credit conditions, along with the Government's spending cuts and tax rises, will continue to act as a "headwind" for the UK economy, which contracted by 0.2 per cent in the final quarter of 2011. The MPC also cautioned that concerns remain over the economic health of some of Britain's major Continental trading partners.
The Bank said that without monetary stimulus it would be "more likely than not" that inflation would undershoot its 2 per cent target in the medium term. The Consumer Price Index fell to 4.2 per cent in December and most analysts expect it to continue to drop throughout 2012.
But the new QE was greeted with dismay by the pensions industry.
Joanne Segars, the chief executive of the National Association of Pension Funds, said while she could understand the need to boost the economy, QE was damaging the value of pensions: "Retirees who get locked into a weak annuity will find that the Bank's money printing leaves them out of pocket.
"For the companies that run final salary pensions, QE pushes their pension funds further into the red. This means businesses have to put more money into their pension schemes, instead of spending it on jobs and investment."
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