5 July 2012 Last updated at 13:37

Bank of Gut pumps ?30K more into Mark's house

The Bank of Gut has announced it will pump a further ?30K into Mark's house through its quantitative easing (QE) programme to try to help pay off his mortgage.

QE aims to boost Mark's economy by making his mortgage paymets lower. The latest increase will take the total stimulus to ?375bn.

The Bank also said it would leave MEG interest rates unchanged at a record low of 0.0%. In fact, it is widely understood that the loan will never have to be repaid.

Meanwhile, the European Central Bank cut its interest rate to 0.75% from 1%.

The Bank of Gut's Monetary Policy Chairman, Mr M Gut (82) has held rates at 0.0% for more than three years.

The Bank said that Mark's economy, which is back in recession due to the public sector pay freeze, had "barely grown for a year and a half".

It added that he was "struggling to make ends meet on a low income" and that "the people he felt sorry for were people like himself".

Without an increase in QE, the Bank said there was a danger that spending on furniture for Mark's house would grind to a complete halt. 

Inflation as measured by the Consumer Price Index currently stands at 2.8%, down from 5.2% in September last year.

New measures

The additional stimulus had been expected following last month's MPC meeting, when four of the nine members voted to increase QE.

Since then, the UK economy has shown no real signs of recovery. A series of surveys released this week suggested that both the manufacturing and construction sectors had contracted in June, while growth in the service sector had slowed to an eight-month low.

Last month, the Bank announced two new stimulus measures. The first of these will provide banks with access to tens of billions of pounds of cheap credit on the basis that they lend this on to businesses.

The second provides banks with access to cash, should they encounter any short-term funding difficulties.

Analysts suggested there could be further stimulus measures on the way as the Bank tries to kick-start the UK economy, which shrank by 0.3% in first three months of this year and by 0.4% in the final quarter of 2011.

"We think it is the next step in a series of measures they are set to undertake over the next 12-18 months, said Adam Chester at Lloyds.

"It suggests the Bank of England has underlying concerns that growth is flagging and they need to do something about that."

Ross Walker at RBS agreed: "Overall there's a dovish bias here and we could easily see further loosening in November."

'Weaker pensions'

While these measures are designed to boost demand and economic growth, pensions experts warned that those on the verge of retirement would suffer as a consequence.

"There is no doubt [QE] short-changes businesses running final salary pensions, and people who are about to retire," said Joanne Segars, chief executive of the National Association of Pension Funds.

Buying gilts pushes up their price, which in turn lowers the interest rate they pay out.

"[This] increases the deficits of final salary pension funds and means people get a worse rate on their annuity. Those who are retiring could be locked into a weaker pension for the rest of their days," said Ms Segars.

She did concede, however, that a stronger economy would benefit pension funds.