With little room for rate cuts the Bank has been pumping money into the banking system through quantitative easing.

The process involves the Bank effectively printing money to buy government and corporate bonds.

It has spent about £52bn so far and is on track to spend £75bn by June. It will now extend its spending to £125bn.

According to the BBC’s economics editor Stephanie Flanders, the evidence to date on whether the policy has been helping the financial system has been mixed.

The Bank’s statements on the current state of the economy were equally so.

It acknowledged that “the world economy remains in deep recession”, but added that, “surveys at home and abroad show promising signs that the pace of decline has begun to moderate”.

BBC, Thursday, 7 May 2009 14:37 UK

The CBI calculates the economy shrank by 1.8% in the first three months of 2009 – and predicts it will contract by 3.9% over 2009 as a whole. The economy should eventually return to growth in the second quarter of 2010, it adds, but advance by just 0.1% in 2010.

Source: Sky News 20-04-2009

The Commodities Boom

Oil prices have been uncharacteristic across the price board over the past 12 months. Reaching an all time high of over $100 per barrel in early 2008, and then dropping sharply within a few short months later to $35 per barrel, the effect has certainly been felt within other financial markets.

When the price of oil was on the rise, other common household items also skyrocketed. Ordinary families faced harsh financial decisions on a day to day basis – food or petrol? And with the rising costs of fuel, even the price of food hit a high point, causing significant pinches in wallets around the region. While oil is not the only commodity affecting the regional market, it has had the most profound impact.

The Housing Bubble

While many home owners have been leveraging and capitalizing on the rising and even booming housing market, some economists are pointing fingers at this housing phenomenon for the current financial crisis. Housing throughout the U.K. has experienced a rise in value. In fact, the rise in real estate value over the past 10 years has been the greatest rise in history within the region. And while rising housing values can provide a variety of benefits for individuals and investors, they typically are followed by an equally sharp decline in value. And, when housing values crash, many property owners are left with negative equity.

Rising Inflation

While the commodities market has been all of the matt and the housing market was blowing bubbles, inflation has also been at one of the highest points in history. Inflation can negatively affect purchasing power over time. And while individual investors certainly feel the pinch of inflation, it more drastically affects importing and exporting between nations.

When these three factors combine, they can create an almost negative explosion within a regional or global marketplace. In addition to everything that has been going on at home, the rising threat of a U.S. recession has also taken its toll on the U.K. economy. While no one knows precisely what caused the current financial crisis, these are the most likely and prominent causes and should as a result be researched further.