Bloomberg News

Bank of England Shouldn’t Rule Out More Bond Buying, BDO Says

June 12, 2011

June 13 (Bloomberg) -- Britain’s economic growth will be “unspectacular” this year and the government’s determination to stick to its fiscal plans means the Bank of England shouldn’t rule out more emergency bond purchases, BDO Stoy Hayward said.

An index of output rose to 98.2 in May from 97.6 in April, remaining below the 100 level indicating average trend growth for an 11th month, the accountancy firm said in a report in London today. A gauge of inflation expectations climbed to 110.9, the highest since September 2008, from 108.5 in April.

“The economic recovery is set to remain unspectacular for the rest of 2011, Peter Hemington, a BDO partner, said in a statement. “As a fiscal ‘Plan B’ looks pretty unlikely, the Bank of England should not discount the possibility of a further injection of quantitative easing to provide some momentum to growth.”

The central bank kept its benchmark interest rate at a record low of 0.5 percent last week, focusing on boosting a flagging recovery over curbing an inflation rate that remains more than twice the bank’s 2 percent target. Officials have split over the direction of policy as consumer-price growth rose to the fastest since 2008, while Britain’s economy failed to grow in the six months through March.

BDO said inflation concerns may be “overstated” as some of the external pressures from the global economy are easing, while weakness in Britain’s labor market is curbing the risk of an “inflationary spiral.”

“We must not exaggerate the threat of inflation to the U.K. economy, as wage inflation remains contained and commodity prices have started to come down,” Hemington said. “Calls for a rise in interest rates are premature.”

--Editors: Eddie Buckle, Andrew Atkinson

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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