BoE adds 25 billion pounds to monetary expansion

By ROBERT BARR

posted: 20 DAYS 8 HOURS AGO

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LONDON -The Bank of England said Thursday it will pour another 25 billion pounds ($41 billion) into the British economy to get the country out of recession as it kept its main interest rate at a record low of 0.5 percent.

The bank decided to expand its asset purchase program to 200 billion pounds from 175 billion pounds. The purchases, which are expected to take three months to complete, aim to increase the amount of money in the economy and are financed by the issuance of central bank reserves.

Separately, the European Central Bank kept its main interest rate unchanged at 1 percent.

The Bank of England's move came after last week's surprise news that Britain remains in recession.

The expansion in the program, commonly known as quantitative easing (QE), was at the bottom end of predictions — many analysts were expecting a 50 billion pound increase.

Stephen Boyle, head of economics at the Royal Bank of Scotland, said there was "no plan B" for the British economy but without QE it might have been worse.

"The extension of the Bank's asset purchase scheme today reminds us that the risks of doing too little considerably outweigh the risks of doing too much," he added.

Though the British economy contracted further in the third quarter of the year, the Bank of England said a number of indicators of spending and confidence, suggested that "a pickup in economic activity may soon be evident."

It noted that output has fallen by nearly 6 percent since January 2008, including a drop of 0.4 percent in the recent third quarter.

Howard Archer, chief European economist at IHS Global Insight, said he suspected this would be the last money committed to quantitative easing, "given recent stickier than anticipated inflation and sterling's weakness."

Though consumer price inflation eased to 1.1 percent in September, the Bank of England said it is likely to shoot above the government's 2 percent target in the near term because of higher gasoline prices and a hike in sales tax in January.

"On balance, the Committee believes that the prospect is for a slow recovery in the level of economic activity, so that a substantial margin of underutilized resources persists," the Bank said. "That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling."

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On the Net: http://www.bankofengland.co.u

2009-11-05 07:52:56