BOE Holds Bond Purchase Program at 200 Billion Pounds

The Bank of England kept its bond- purchase program on hold for a second month as policy makers assessed whether the 200 billion pounds ($302 billion) spent so far is enough to prevent a relapse in the economy., Bloomberg 3/4/2010 9:42:12 AM

The Monetary Policy Committee, led by Governor Mervyn King, held the target for its asset plan unchanged today, as predicted by all 45 economists in a Bloomberg News survey. The bank also kept the benchmark interest rate at a record low of 0.5 percent.

King said last week that the economy faces a gradual recovery” from the recession, and he pledged to aid the pickup by buying more bonds if needed. The election due within weeks overshadowed today’s decision as concern over whether the next government can control a budget deficit equivalent to Greece’s pushed the pound to its worst losing streak since October 2008.

Conservative Party leader David Cameron last week pledged early action” to tackle the U.K. budget deficit. Brown says the opposition’s plans to cut spending this year would plunge the economy into a double-dip recession.”

The recovery has aided Brown in his fight to keep power. Britain’s economy grew 0.3 percent in the fourth quarter, ending the deepest recession on record. Taylor Wimpey Plc, the U.K.’s second-largest homebuilder by volume, said yesterday its 2009 loss narrowed as the housing market improved. Aviva Plc, the nation’s second-biggest insurer, said today it swung to a profit last year on higher investment returns.

King said last month it was too soon to call an end to the bond program as the economy still faces enormous uncertainty.” While gross domestic product rose faster than previously estimated in the final quarter of 2009, jobless claims have climbed to the highest since April 1997 and Halifax said today that house prices dropped 1.5 percent in February.

Officials say that the bond plan’s full impact has yet to come through. The central bank’s favored measure of M4 money supply, which excludes financial companies intermediating between banks, rose an annualized 1.9 percent in the three months through January after dropping 0.3 percent in the quarter through December.

The central bank says that the outlook for consumer prices will guide its decision on whether to expand purchases or withdraw stimulus. While inflation accelerated to a 14-month high of 3.5 percent in January, officials currently predict it will slow below the 2 percent target and risks undershooting it at the end of their two-year horizon.

BOE Holds Bond Purchase Program at 200 Billion Pounds