Bank looks at injecting cash

LONDON (Reuters) - The Bank of England is working on radical plans to inject cash directly into the economy as a last resort to reverse a slide into recession, a newspaper reported on Friday.

The unsourced report in The Daily Telegraph came after the Bank of England on Thursday slashed interest rates to their lowest level since 1951 and indicated that more needed to be done to prevent a credit squeeze tipping the economy into a prolonged recession.

The Daily Telegraph said the Bank was "working on radical plans to inject cash directly into the economy -- the nuclear option to be used only when interest rates approach zero."

The report said the Bank was considering engaging in "quantitative easing" -- printing more money to reflate the economy.

"Measures under consideration include direct purchases of assets, such as government debt or commercial investments, by the Bank or the Treasury, as well as expanding the Bank's balance sheet, a means of pumping extra cash into the banking sector," the newspaper said.

The report said the proposals could be put into action within weeks, although it said they would have to be vetted by the Treasury, which was thought to remain sceptical.

Cutting its main rate by one percentage point to 2 percent on Thursday, the Bank noted that credit conditions remained extremely difficult and "it was unlikely that a normal volume of lending would be restored without further measures."

An adviser to U.S. President-elect Barack Obama said late on Thursday that central banks may have to engage in direct lending to lift the economy.

"I think it is probably going to be necessary for central banks all over the world to get more involved in direct lending," Robert Reich, a former U.S. Labor Secretary and a member of Obama's transition economic advisory board, told "Newsnight".