The Bank of England took a far bigger step than expected to boost Britain's recession-hit economy on Thursday, expanding its quantitative easing program to 175 billion pounds from 125 billion.

The central bank also decided at its monthly meeting to leave interest rates at a record low 0.5 percent.

The QE decision enables the central bank to continue its program of bond purchases with newly created money for another three months, and caused the prices of British shares and government debt to surge.

The BoE said the UK economy had been suffering a deeper recession than expected, though there were signs it was bottoming out and conditions in Britain's main export markets were improving.

While some recovery in output growth is in prospect, the margin of spare capacity in the economy is likely to continue to grow for some while yet, bearing down on inflation in the medium term, the BoE said, adding that the scale of the QE program would be kept under review.

Economists had been evenly split on whether the BoE would choose effectively to print more money to buy assets such as government bonds and corporate debt. Few if any had forecast an expansion of QE above the original government-set limit of 150 billion pounds.

This is a huge surprise, said Ross Walker, UK economist at Royal Bank of Scotland. All the rhetoric seemed to point to not doing very much more, even up to 150 (billion) seemed odds-against after the better (economic) surveys.

The BoE had faced a dilemma at its August 5-6 policy meeting. Halting the QE process too early could prolong Britain's worst recession in decades, but doing too much risks setting the stage for an inflation surge in several years time.

If anything, economists had shied further away from expecting more QE in the days running up to the decision, as data ranging from industrial output to service-sector purchasing managers' reports have surprised on the upside.

Finance minister Alistair Darling, approving the expanded QE program, said raising the limit would help the BoE to avoid undershooting its 2 percent inflation target.

The BoE will widen the range of gilts it purchases under the expanded scheme, buying maturities as short as three years and longer than 25.

(Additional reporting by Fiona Shaikh; editing by David Stamp)