In an extraordinary bid to free Britain from its first recession in 18 years, the Bank of England said it would issue the equivalent of £106 billion via so-called "quantitative easing'' measures.
Creating more money is a radical route to trying to break the credit crunch. Under "quantitative easing", central banks create money to boost the money supply and prevent prices from falling into a trend of deflation.
They use it to purchase assets, such as government bonds and commercial paper, in a move frequently referred to as printing money.
The new cash is created electronically, but the process has much the same effect as printing notes because it expands money supply and boosts the balance sheets of banks and institutions.
The Bank of England plans to buy government bonds from commercial banks in the hope that the institutions will again lend in vast quantities to businesses and individuals after sitting tight since the credit crisis erupted in 2007.
"Quantitative easing is the last-chance saloon for the Bank of England,'' GFT market strategist David Morrison told AFP.
With British interest rates so low and having little traction, quantitative easing is seen as the next best option, modelled on the Japanese experience of the 1990s when the government there created money of its own.
But BoE Governor Mervyn King admitted that he was uncertain how long the unconventional monetary policy would take to stimulate the British economy.
"These measures, we think, will work in the long run. I can't be sure how long it will take,'' King told Sky News television.
The BoE overnight slashed borrowing costs by half a percentage point to 0.5 percent - the lowest level in the Bank of England's 315-year history.
Its announcement came shortly before the European Central Bank lowered its main interest rate by half a percentage point to a record low 1.50 per cent as the eurozone also battles recession.
Chancellor of the Exchequer Darling has meanwhile authorised the independent BoE's monetary policy committee (MPC) to create up to 150 billion pounds of new money, the central bank said overnight.
BoE chief Mr King last month wrote to Darling seeking permission for quantitative easing - a measure also being considered by other central banks to get economies back on track.
"The 75 billion pounds that the MPC is going to use initially (over the next three months) is a good starting point in its first attempt to pump money into the system,'' said Ernst & Young analyst Hetal Mehta.
"No one knows how much money is required so the MPC's decision to use half of the authorised amount is sensible.''
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