It is hard to be sure, but the Bank of England is pretty confident that its injection of huge amounts of new money into the economy is working. That is to say, things would be even worse if the Bank hadn’t bought up £175 billion worth of assets, mostly government debt.

But, as all the recent evidence suggests, they are still very bad. Which is why yesterday’s decision by the Monetary Policy Committee to expand the programme by just £25 billion looks so half-hearted.

Last month’s figures suggesting the economy shrank by 0.4 per cent in the third quarter were a real shocker. And yesterday’s industrial production numbers undermined hopes that the growth figures will eventually be revised upwards.

A number of business bosses I have talked to recently have said that trading has shown little if any improvement in the past few weeks, supporting the National Institute of Economic and Social Research view that the economy continued to shrink in October.

The Bank pointed out yesterday that some indicators of spending and confidence “suggest that a pick-up in economic activity may soon be evident”. But there are other indicators that don’t, not least the very weak money supply figures.

Moreover, the economy will soon be facing more headwinds, such as the reversal of the VAT cut at the end of the year. And with the public finances in such a mess, it is hard to believe than any extra fiscal stimulus announced in next month’s Pre-Budget Report will amount to much.

One of the goals of the quantitative easing policy was to boost bank lending. But it remains very weak. The Bank’s efforts have underpinned the strength of equity and bond prices, which in turn has helped large companies that have access to the capital markets. But, for smaller companies, bank lending remains critical and the banks remain under pressure — despite the latest round of government support for Lloyds and Royal Bank of Scotland.

In his letter to Mervyn King, the Bank Governor, yesterday, Alistair Darling pointed to the “welcome improvement” in the markets for commercial paper and investment-grade corporate bonds since the start of the year, partly reflecting the support provided by the policy.

But the Treasury has been frustrated that the Bank has focused its firepower almost exclusively on government bonds, rather than buying forms of company debt, which could have a more direct impact on corporate credit markets.

Arguably, the price of long-term UK government bonds is already anomalously high and one of the main results of driving the yield even lower has been to cause serious problems for defined-benefit pension funds and the companies that have to fund their deficits.

Mr Darling made a pointed reference to the Bank’s focus on buying gilts in his letter, saying he “would welcome an update on the prospective use of the secured commercial paper facility”.

This has been in operation since the beginning of August (much later than the Treasury had hoped) and has so far resulted in purchases of precisely zero. The Bank was given permission to spend £50 billion of its total programme of purchases on private sector debt as a whole and has so far bought just £2 billion.

Bank officials reply that British corporate debt markets are too small and illiquid to accommodate big purchases, an argument that leaves many economists baffled.

So why did the Bank opt to increase its programme by only £25 billion, rather than the £50 billion many expected?

Some of the Monetary Policy Committee’s members are clearly equivocal about the strategy and may have decided £25 billion was the least the Bank could do without undermining market confidence. Yesterday’s move may have signalled that the committee is now focused on how to unwind the strategy.

With inflation set to remain below the Bank’s target for the foreseeable future and with all the other economic ammunition exhausted, that would be a serious mistake.

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