The somewhat unnerving headline is that the UK Bank Of England begins ‘printing money’ to fight slump.  This is an unprecedented step to prevent the deepest slump since the 1930s.

The Bank of England yesterday announced  plans to inject up to £75bn into the economy over the next three months.

Alarmed by signs Britain’s malfunctioning banking system is starving consumers and businesses of credit, chancellor Alistair Darling yesterday gave Threadneedle Street clearance to begin creating money – the last-gasp measure used by Japan to end a decade of recession and deflation.

The Bank said it would embark on quantitative easing next week, after its monetary policy committee cut the bank rate for the sixth time since the global financial system came close to collapse last October. The rate is now 0.5% – a level not seen before in the Bank’s 315-year history.

Since it is unprecedented, it is by no means certain that it will succeed.  Some suggest that the Bank of England Governor Mervyn King is ‘Groping in the Dark’.

BOE King, criticized for his initial response to the credit crisis, is now embarking on one of the biggest risks in British economic history.

The central bank yesterday won authority to print as much as 150 billion pounds ($212 billion) and pump it into an economy facing its worst recession since World War II, after cutting interest rates close to zero. With markets clogged and economic activity shriveling, King can’t be sure the gamble will work.

“We’re groping in the dark,” said Willem Buiter, a former Bank of England policy maker and now a professor at the London School of Economics. “Ultimately, we’ll know it works if the economy turns around, and that we won’t know for a couple of years.”

One can only hope that these desperate measures in the UK banking world do succeed even thought the road back is likely to be long and bumpy.

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Technorati Tags: Alistair Darling, Bank of England, Mervyn King, Monetary policy, Quantitative easing, Threadneedle Street