UK government must continue with overall spending cuts to reduce the fiscal deficit, but balance this with increased investment spending, the European Commission has said.  The commission said such extra investment – particularly on infrastructure projects – was required to stimulate the UK economy.

Regarding the overall growth of the UK economy, the commission remains more pessimistic than the Office for Budget Responsibility (OBR), the UK’s official independent financial watchdog.  Brussels expects the UK economy will expand by 0.5% this year, and by 1.7% in 2013.  The commission’s report comes a week after the International Monetary Fund said the UK government would have to consider delaying spending cuts if UK economic growth failed to pick up.

QE is the means by which the Bank of England attempts to boost bank lending, and therefore wider economic growth, by injecting new money into the financial system.

UK interest rates are currently set at a record low of 0.5%, where they have been for three years.

Credit: BBC/Reuters