Bloomberg News

BOE May Reactivate Bond Program, Say a Third of Analysts Polled

September 30, 2011

Oct. 1 (Bloomberg) -- The Bank of England may reactivate its bond-purchase program next week, according to almost a third of economists in a Bloomberg poll, joining central banks from Brazil to Israel that are loosening policy to aid growth.

Nine out of 29 economists forecast the central bank will increase its bond plan on Oct. 6. That’s the highest proportion in the survey since November 2009, when it last expanded the program. The rest say the bank will hold the program at 200 billion pounds ($313 billion).

Signs of a swing at the Bank of England emerged in August, as policy makers moved toward arguments Adam Posen has made since October for more so-called quantitative easing. As the Federal Reserve shifted its bond holdings to prevent another recession and Brazil, Switzerland and Israel cut interest rates, inflation at more than double the U.K. bank’s target prompted the majority of its officials to hold fire.

“Recent indicators suggest that the economic outlook continues to deteriorate rapidly,” said Michael Saunders, chief European economist at Citigroup Inc. in London. “With the Monetary Policy Committee having prepared the ground for QE in recent weeks, we doubt they will delay further.”

All 53 economists in a separate survey see no change in the Bank of England’s key interest rate, which is at a record low of 0.5 percent.

The European Central Bank, which also meets next week, may consider policy measures such as reintroducing 12-month loans to banks as it fights the euro region’s sovereign-debt crisis. As with the Bank of England, above-target inflation is complicating its task. In the U.K., consumer-price growth was 4.5 percent in August, compared with the 2 percent goal.

Policy Shift

The pound has fallen about 5.5 percent against the dollar since Aug. 17, when minutes of the Bank of England’s meeting that month showed officials discussed the need for more stimulus. The report also showed Spencer Dale and Martin Weale abandoned a push for higher rates to tame prices.

The debate on reviving asset purchases intensified in September, with most of the nine-member MPC saying it’s “increasingly probable” more stimulus will be needed to salvage the recovery, minutes of the Sept. 8 decision showed.

A report on Oct. 5 may confirm that the U.K. economy expanded just 0.2 percent in the second quarter after stagnating over the previous two quarters. The data will include initial estimates of exports, company investment and spending by consumers and the government.

--With assistance from Mark Evans and Harumi Ichikura in London. Editors: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net


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