The worse-than-expected decline in UK GDP is likely to spur the Bank of England into injecting another £50bn into the economy next month, said Henderson's Simon Ward.
The group's chief economist said the revised contraction in GDP announced by the Office for National Statistics (ONS) - which showed the economy had shrunk by 0.3% rather than the initial estimate of 0.2% - means another round of quantitiative easing looks likely next month.
"I would expect another £50bn next month, rather than July," he said.
Ward added he is surprised the Bank of England has not increased the size of the asset purchase scheme already following a string of weak economic data.
"I expected them to announce something in May, but there is enough in the latest MPC minutes to suggest it is on the table."
However Ward (pictured), who has been critical of the Monetary Policy Committee's use of QE, said a better solution now would be to launch an LTRO-style lending programme if it really wanted to improve liquidity in markets.
"I do not think QE is the right thing to do," he said. "Instead if they offered some subsidised liquidity to the banking system, that would be better.
"A combination of an LTRO-type operation, with less stringent capital requirements on banks, would help to reduce borrowing rates."
Ward noted interbank lending rates in the UK are much higher than the US, and even Europe, despite the country being shielded from the worst of the eurozone crisis so far.
Looking at 3 month-LIBOR, he said spreads relative to UK interst rates are currently at 54bps, well above the eurozone at 32bps and the US at 30bps.
Ward also urged the Bank not to cut interest rates any further from their current record low of 0.5%, despite growing calls from some quarters that it could stimulate the economy.
"A rate cut would reduce profitability at banks even further, which would not be helpful," he said.
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