Moves for extra £50bn from Bank

Turmoil in Spain and Greece fuels calls for another round of quantitative easing for UK economy

Calls to flood billions more into the UK's stalled recovery are set to increase this week as Spain's banking woes and the threat of a dramatic pullout of the euro by Greece tightens the funding screw on UK banks.

The Bank of England's latest monetary policy committee vote on Thursday comes days before Greece's next round of elections which could spark a full-blown crisis in the eurozone if anti-bailout left-wingers Syriza claim victory.

Since the MPC last met, Spain has looked at ways to finance a €19bn (£15bn) bail-out of its fourth-biggest bank, Bankia, and nationalise the firm to avert a collapse. Madrid has also been punished by bond markets fearful that an international rescue could be prime minister Mariano Rajoy's only option to prop up its ailing financial institutions.

The impact of the turmoil on UK banks' cost of funding has been acute over the past month, according to Deutsche Bank's chief UK economist George Buckley. The bank's preferred barometer of bank funding costs – which adds their borrowing costs for three months to the cost of insuring against a failure via so-called credit default swaps – has spiked at 3.67 per cent. This is up from 3.25 per cent a month ago, and close to the crisis levels seen last November when the European Central Bank pumped €1 trillion in emergency liquidity into the European banking system.

The alarming rise in funding costs comes against a backdrop of a deeper-than-expected double-dip recession, which triggered concern among the Bank's rate-setters, including Adam Posen and Martin Weale. The latest shock decline among British manufacturers in May – the biggest since the aftermath of the Lehman Brothers collapse in November 2008 – will only add to the concerns.

Experts said more of the nine-strong MPC could join David Miles, currently the committee's only advocate for the extension of quantitative easing, in calling for more stimulus for the economy, particularly if the services sector shows signs of a similar decline.

Mr Buckley said the Bank could opt for an extra £50bn in QE this week and even cut interest rates below the current record low of 0.5 per cent. He added: "The balance of risks is clearly towards more QE."

Mr Posen, who surprisingly dropped his call for more QE in April, is expected to change his vote. However, there is an outside chance that deputy governor Charlie Bean and Mr Weale will push for more QE, HSBC UK's economist Simon Wells said.