The Bank of England on Thursday reactivated extraordinary stimulus measures by agreeing to inject £75 billion into a British economy caught up in a global slowdown and fierce eurozone debt crisis.
After a two-day policy meeting, the BoE voted in favour of increasing its quantitative easing (QE) policy by £75 billion (86 billion euros, $115 billion) to £275 billion over a four-month period.
The Bank of England's nine-member Monetary Policy Committee (MPC) also decided to keep the main interest rate at a record-low 0.50 percent, the bank said in a statement.
The decision to hold interest rates had been widely expected, while many experts had forecast more stimulus measures as the country's economic recovery grinds to a near halt. QE was resumed after a near-two year break.
British finance minister George Osborne authorised the resumption of the emergency policy in an official letter to Bank of England governor Mervyn King.
"Further asset purchases provide the MPC with the appropriate tool with which to address the deterioration in economic conditions, particularly in view of the tensions in the world economy that threatens the UK recovery," he wrote.
"I am therefore writing to authorise an increase in the ceiling of asset purchases financed by the issuance of central bank reserves from £200 billion to up to £275 billion."
In reaction, the pound hit a 14-month low against the dollar, before clawing back ground, while the London stock market advanced 2.06 percent in afternoon deals.
The policy announcements came one day after official data showed the British economy had flatlined over the past nine months -- and that the 2008/2009 recession was worse than previously thought.
Also on Thursday, the European Central Bank held its key interest rate at 1.5 percent, shrugging off speculation it could cut borrowing costs to help combat the region's sovereign debt crisis.
The Bank of England (BoE) meanwhile warned that Britain's recovery was endangered by a flat world economy and the eurozone crisis that has so far resulted in EU/IMF bailouts for Greece, Ireland and Portugal.
"Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery," the BoE added.
The British central bank's key interest rate has stood at 0.50 percent since March 2009, when it also decided to begin pumping new cash into the economy under quantitative easing -- more commonly referred to as "printing money".
Under QE, the BoE creates new cash electronically which is used to purchase assets such as government and corporate bonds in a bid to encourage lending and in turn boost economic activity.
The Bank of England had injected a total of £200 billion into the economy between March 2009 and January 2010.
Some experts claim that while QE can help to kick-start an economy, it also threatens to fuel inflation, which in the long run can actually hinder growth.
With British annual inflation currently at 4.5 percent -- far above the BoE's 2.0 percent target -- the bank faces a tricky balancing act.
The economy almost ground to a halt in the second quarter slowed by weak consumer spending and industrial output, revised data showed on Wednesday.
Gross domestic product grew by just 0.1 percent in the three months to June, meaning that it flatlined over the past nine months.
Britain hauled itself out of a deep recession in the third quarter of 2009, but its recovery has also been severely constrained by the impact of collapsing consumer confidence and painful state austerity cuts.
Economist Chris Williamson, at financial services information firm Markit, said the risks of falling back into recession had become "sufficiently high to warrant immediate action" by the Bank of England.
"The strategy is of course not without risk... Printing more money is inflationary, and high prices are already one of the factors hurting households and subduing economic growth," he added.
Revised official data published Wednesday also showed that Britain's 2008/2009 recession was much deeper than previously thought. The economy experienced a peak-to-trough fall of 7.1 percent, rather than the previous estimate of 6.4 percent.