Osborne 2009: 'Printing money last resort of desperate govts'

George Osborne is set to face tough questions today about the coalition government's economic strategy after the Bank of England expanded quantitative easing by £75bn, a move he has previously called "the last resort of desperate governments".

The Bank today increased its QE programme by a shock £75bn in a bid to kick-start the UK’s ailing economy. Previously only £50bn had been discussed as a possible rise.

It is the first time the Bank has issued QE under the coalition government. The first round - which pumped £200bn into the economy - happened under Labour.

ln 2009 Osborne, then shadow Chancellor, slammed Labour Chancellor Alistair Darling's emergency plan to print more money.

Osborne said at the time: "The very fact that the Treasury is speculating about printing money shows that Gordon Brown has led Britain to the brink of bankruptcy.

"Printing money is the last resort of desperate governments when all other policies have failed.

"It can't be ruled out as a last resort in the fight against deflation, but in the end printing money risks losing control of inflation and all the economic problems that high inflation brings."

Also in 2009, Osborne called QE a "leap in the dark".

He told the BBC: "I don't think anyone should be pleased that we have reached this point. It is an admission of failure and carries considerable risk."

The Bank's latest round of asset purchases takes the Bank's QE programme to £275bn as fresh fears surface about the country's stalling recovery amid an escalation of the eurozone debt crisis.

The move comes after several members of the Bank's Monetary Policy Committee recently suggested an extension of its bond-buying programme would help boost growth.

Citing its reasons to pump more money into the economy, the Bank said the pace of global expansion had slackened, particularly in the UK's export markets. It also also pointed to "vulnerabilities" in the indebtedness of eurozone counties.

"In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated," said the Bank in a statement.

It added the squeeze on households' real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending while the constraints in bank funding may restrict the availability of credit to consumers and businesses.

Revised figures show the UK economy managed just 0.1% growth in the second quarter - against a previous reading of 0.2% - whilst first quarter growth was revised down to 0.4%.

Up until now arch-dove Adam Posen has been the only MPC member to argue for a new injection of monetary stimulus.

The new round of QE suggests the Bank has put inflationary concerns on the backburner as fears mount the UK could be on the verge of a double dip recession.

Inflation, as measured by the CPI, currently stands at 4.5% - more than double the Bank's target rate.

In its statement the Bank added inflation is likely to rise above 5% in the next month or so but will then fall back sharply next year as temporary inflationary pressures subside.

However, it added the deterioration in outlook has made it more likely inflation will undershoot the 2% target in the medium term.

"In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the committee judged that it was necessary to inject further monetary stimulus into the economy."

Meanwhile, the Bank held interest rates at their historical low of 0.5%, as was widely expected. Rates have now been held at 0.5% since March 2009.