More emergency cash expected to be pumped into Britain's economy

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More emergency cash is expected to be pumped into Britain's economy this week as policymakers seek to cushion the UK from a worsening eurozone crisis.

The Bank of England's Monetary Policy Committee (MPC) is widely predicted to boost its Quantitative Easing (QE) programme by another £50 billion to £375 billion when it announces the outcome of its latest monthly meeting on Thursday.

It comes after a series of major moves by the Bank and Treasury to kick-start lending and rescue the country from a double-dip recession.

On Friday, the Bank said rules should be relaxed to free up billions of pounds of cash held on their balance sheets as a so-called liquidity buffer.

This followed the announcement earlier this month of a £100 billion-plus scheme to boost bank lending.

The Bank is working on a new "funding for lending" scheme, while last week it held its first £5 billion monthly auction under a six-month loan facility programme.

The MPC's two-day meeting begins on Wednesday and comes after a swathe of gloom on Britain's economy.

Bank Governor Sir Mervyn King said last week he was shocked at the pace at which economic conditions had worsened as he unveiled the biannual Financial Stability report.

Official figures also showed the double-dip recession was deeper than originally feared as revised figures revealed a sharper decline in the economy in the final quarter of last year, when gross domestic product (GDP) shrank by 0.4% between October and December, compared with a previous estimate of 0.3%.

This was followed on Friday by grim data which showed the all-important services sector, which accounts for some 75% of the economy, failed to grow between March and April.

The MPC has already come close to pushing the button on more QE, when minutes of the June rates meeting showed four of the nine-strong committee - including Sir Mervyn - were narrowly out-voted on more QE.

Against this backdrop, economists believe this month's will see the Committee agree on extending QE.

Philip Shaw, economist at Investec, said: "Overall there have been enough clues that the MPC will relaunch QE this time and it would be a major surprise if this did not happen."

He is pencilling in a £50 billion rise, as is Howard Archer at IHS Global Insight.

Mr Archer said: "The MPC were on the brink of approving more QE at their June meeting, and with latest economic data and surveys largely grim, the outlook uncertain and troubling, the Eurozone crisis continuing and latest inflation developments largely favourable, we believe that a majority of MPC members will decide that more QE is now warranted and justifiable."

However, the Bank is not expected to cut interest rates below their current historic low of 0.5%, despite a predicted rate cut by the European Central Bank on the same day.

Mr King and his MPC colleagues told MPs in a recent hearing on the Bank's last inflation report that while they stood ready to cut rates if needed, they saw little use of doing so.

They believe a rate cut could do more harm than good, by further reducing interest margins for small building societies, which could threaten their future and limit competition in the industry.

The Bank is expected to prefer to use other monetary tools to kickstart lending in the UK.

But there have been concerns that its actions will not encourage lenders to offer more cash, or indeed see recession-hit businesses borrow more.