Bank of England drastically increases money printing

"Shock and awe" is how some economists described the Bank of England's decision to bulk up its £200bn quantitative easing (QE) programme by £75bn on Thursday. And, certainly, the move shocked and awed the markets.

"Surveys of both economists and market participants suggested that most thought the Bank would wait until November at least," Goldman Sachs pointed out. "The £75bn is also larger than expected: we had expected only £50bn."

The pound fell 0.41 cents against the dollar. The FTSE 100 jumped 3.7pc. Gilt yields fell on the prospect of the Bank buying roughly £5bn a week for four months from next Monday. Sir Mervyn King, the Bank's Governor, couldn't have asked for a better reception.

Weak sterling will help exports, higher share prices will help companies, and lower gilt yields will help borrowers. By pre-empting the market and over-shooting expectations, "the Bank has achieved the most bang for its buck", Scotia Capital's Alan Clarke said. It was a move straight out of the 2008 crisis playbook.

From a communication point of view, the Bank could not have performed better. In the past couple of months, it has regularly dropped hints that QE2 was coming – carefully preparing the markets, but still surprising them with the force of its action.

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