UPDATE: Bank Of England Raises Bond-Buying Program To GBP200B

(Adds comments from King, Darling, details.)

 
   By Natasha Brereton 
   Of DOW JONES NEWSWIRES 
 

The Bank of England's Monetary Policy Committee Thursday invested in even more insurance against a prolonged slump, expanding its bond buying program by GBP25 billion to GBP200 billion, amid mixed signs on the health of the U.K. economy.

The extension of the BOE's quantitative easing policy of buying bonds with freshly created central bank money was widely forecast by economists. Seventeen out of the 20 analysts polled by Dow Jones Newswires last week tipped an increase, although they were divided over the likely amount.

A large number of analysts see the move as being the last in the BOE's current easing cycle. But they say that, with the economy likely to remain weak for some time to come, the BOE will be in no hurry to tighten policy.

The MPC said it will take three more months to complete the additional purchases, slowing down the pace of its buying plan in line with that view.

In a letter to Chancellor of the Exchequer Alistair Darling requesting the authority for the move, BOE Governor Mervyn King noted that the weakness of the sterling effective exchange rate would make U.K. exporters more competitive.

But he warned that the necessity for banks to continue to repair their balance sheets would restrict the availability of capital, and that high levels of debt would restrict spending.

"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 under-utilised resources persists," King wrote. "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."

In his reply, dated Thursday, Darling said he agreed that an increase in the purchases ceiling "would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target."

Many analysts expect minutes of this week's meeting, to be published Nov. 18, will show the committee was divided in its decision on whether or not to extend easing measures.

In August, when the MPC voted to expand its bond buying policy by GBP50 billion to GBP175 billion, King, and MPC external members David Miles and Tim Besley, called for a larger expansion of GBP75 billion.

-By Natasha Brereton, Dow Jones Newswires; +44 20 7842 9254; natasha.brereton@dowjones.com

(Laurence Norman contributed to this report.)

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(END) Dow Jones Newswires

November 05, 2009 07:32 ET (12:32 GMT)


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