The Bank of England's rate-setting committee has voted to pump an extra £25 billion directly into the economy through its scheme of quantitative easing (QE) in a bid to end the longest British recession since records began.

The extra funds will take the amount of newly printed money the Bank will pour into the economy to £200 billion.

The nine-strong Monetary Policy Committee (MPC), which also voted to keep the interest rate on hold at 0.5 per cent for the eighth consecutive month, received permission from Alistair Darling, the Chancellor, to buy an extra £25 billion in gilts and other corporate bonds.

In his letter to the Chancellor, Mervyn King, the Bank's Governor said that while there was evidence that the economy could be starting to turn around, credit was still constrained as banks tried to repair their balance sheets. Earlier this week, the Government revealed it would pump up to £40 billion into Royal Bank of Scotland and Lloyds Banking Group.

Mr King said: "On balance, the Committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists. That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling."

While the Chancellor agreed to the extension of quantitative easing, there was evidence of a slight tension between Mr Darling and Mr King. The Chancellor asked the Governor for an update on the new commercial paper facility, which aims to channel money to smaller businesses by buying asset-backed commercial paper secured on companies’ assets such as trade receivables and credit card debt.

Data published by the Bank of England in October showed that no business had yet taken advantage of the scheme.

The decision to increase quantitative easing had been widely expected by economists after shock figures showed that the UK economy failed to emerge from recession in the third quarter, making Britain the only major economy to stay mired in an economic slump.

Last week, America, the world's largest economy, emerged from recession, joining Japan, China, Germany and France in recovery.

In contrast, Britain's Gross Domestic Product (GDP), a key measure of goods and services produced by the country, fell by 0.4 per cent between July and September.

Today, business groups reacted favourably to the increase.

Ian McCafferty, chief economic adviser at the CBI, said: “The Bank has recognised that the economic situation is still very fragile, and we welcome its decision. Extending quantitative easing ought to provide an extra degree of support for business and consumer confidence."

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