Recession "deeper" than expected

The Bank of England has warned that the recession is likely to be deeper and longer than previously expected - and hinted that it may have to print more money in order to stimulate economic growth.

In its latest inflation report, the central bank warns that the prospects for inflation and economic growth remain “unusually uncertain” - presenting a significant risk that the recession could be “more pronounced” that originally forecast.

This means that the Bank of England’s Monetary Policy Committee (MPC) could cut the base rate again when it meets in March, despite the rate already sitting at an historical low of 1%. It may also have to take other monetary measures to inject more money into the economy.

“The Bank of England’s Inflation Report gives an extremely strong signal that it is intending to implement significant further policy easing, both in terms of further rate cuts and unconventional measures like quantitative easing,” says Jonathan Loynes, chief European economist at Capital Economics.

So, is the Bank of England about to start printing money? Richard Snook, senior economist at the Centre for Economic Business Research, believes so.

“The Inflation Report paints an unambiguously gloomy picture of the synchronous downturn in the global economy and supports this with recent economic and survey data,” he says.

The Bank of England does suggest that the recession could be short-lived with economic growth turning positive at the start of 2010. This optimistic forecast is based on the central bank printing more money, says Snook.

“This scenario, unimaginable two years ago, would be a stunning indictment of UK economic and monetary policy over the last 12 years,” he adds.