Equities 'inflated' by Bank's Quantitative Easing programme

However, whilst it has lifted equity prices, the Bank's actions have resulted in a huge enlargement of its own balance sheet, warned the BoE.

It said the QE scheme had resulted in a 'considerable expansion' of its balance sheet which is 'as large as at any point in the past two centuries'.

Spencer Dale, who was speaking in the bank's latest quarterly bulletin, defended the 'necessary' response as it had priced its schemes in such a way as to make them 'unattractive' to banks in normal market conditions forcing them to find their own sources of finance - not via the BoE's QE funding.

It concluded that the size of liquidity insurance operation was already diminishing and would continue until economic and financial conditions returned to normal.

There has been much debate over the BoE's quantitative easing scheme with some suggesting that it had caused a reaction in the bond and equity markets.

Whilst normal economic conditions allow for bond prices and equity prices are expected to move in opposite direction, QE has allowed for bond prices to rise whilst equity prices are also rising, as investors believe there is more purchasing power in the markets that can sufficiently generate a higher bond yield - hence the price of bonds also increasing as a result.

The BoE has suggested that it would restart the Quantitive Easing programme if conditions further deteriorated.