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Bank of England cuts interest rates to 0.5 percent

The Bank of England cut official interest rates by half a percentage point to 0.5 percent and announced plans to expand the domestic money supply on Thursday. The bank's decision to drop rates to a new record low - the sixth cut in as many months - was overshadowed by its move to begin quantitative easing.

The central bank will buy assets, such as government securities and corporate bonds, without borrowing to fund the purchases - essentially creating a new supply of money.

The bank said it will purchase 75 billion pound ($106 billion) of assets over three months by issuing central bank reserves. By buying the assets, the Bank of England will be expanding the monetary base and hopefully encouraging the banks to lend in the wider economy instead of just hoarding it.

"In these highly uncertain times, there are merits to stimulating the economy through a variety of different channels," Bank of England Governor Mervyn King said in a letter to Treasury chief Alistair Darling seeking permission for the measure. The letter was released by the central bank alongside the official announcement.

The bank said that it will monitor the effectiveness of the program in boosting the supply of money and spending growth at its future meetings, "adjusting the scale of purchases as appropriate."

The nine-member monetary policy committee said members had voted to move to quantitative easing after judging that the 0.5 percentage point cut in rates would still leave a "substantial risk" of undershooting the bank's 2 percent inflation target in the medium term.

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