BOE Extends Bond Purchases

The Bank of England expanded its bond purchase program beyond its original limit in an effort to spur lending and fight a recession that’s deeper than previously anticipated.

The bank’s move suggests policy makers, who based the decision on quarterly forecasts prepared this month, assessed that their stimulus plan and record low interest rates weren’t enough to quell the threat of deflation. While services grew at the fastest pace in 1 1/2 years in July, unemployment is rising and banks have kept restricting access to credit.

Bank’s Statement

In the United Kingdom, the recession appears to have been deeper than previously thought,” the central bank said in a statement in London today. While some recovery in output growth is in prospect, the margin of spare capacity in the economy is likely to continue to grow for some while yet, bearing down on inflation in the medium term.”

Chancellor of the Exchequer Alistair Darling authorized the purchases, reflecting Prime Minister Gordon Brown’s concern that the economy remains fragile.

Brown said on July 22 that the bank’s so-called quantitative easing policy and interest-rate cuts have made a difference.” He faces elections by June 2010, and his Labour Party trailed the Conservative opposition by 14 percentage points in a YouGov Plc opinion poll that ended July 30.

I agree that an increase in the ceiling would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target,” Darling wrote in a letter to the central bank.

BOE Extends Bond Purchases, Bloomberg
8/6/2009 8:50:13 AM