The Bank of England (BoE) has said that Britain could be facing the "most serious financial crisis" ever as it pledged to print £75million of new money to inject into the faltering economy.
BoE governor Mervyn King (pictured) said that Britain was facing "the most serious financial crisis since the 1930s" – the Great Depression – and added that today's crisis might even be the worst ever.
King explained: "We’re creating money because there’s not enough money in the economy. We’re having to deal with very unusual circumstances but react calmly to this and do the right thing."
Financial insiders say the BoE's decision is the clearest indication yet that Britain is on the brink of a double-dip recession.
New figures released this week showed that GDP grew 0.1 per cent between April and June, compared with an initial estimate of 0.2 per cent. The first quarter was also downgraded to 0.4 per cent from 0.5 per cent.
This means that there has effectively been no economic growth in Britain for nine months.
The bank also cited the eurozone debt crisis as a factor, admitting that it had created “severe strains in bank funding markets and financial markets”.
Critics of the bank's decision say that creating new money pushes up inflation and drives down sterling. But King said that any negative effects are a price worth paying to save the economy.
He admitted that inflation was likely to rise above five per cent in two weeks, but that would be its "peak".
He added the move was consistent with the 2 per cent inflation target, because the slowing economy means that inflation might fall below that figure “by the end of next year or in 2013”.