The Bank of England pledged to buy the most bonds since the depths of the last financial crisis as officials raced to stop the euro-region debt turmoil from pushing the economy back into recession.
The nine-member Monetary Policy Committee led by Governor Mervyn King raised the ceiling for so-called quantitative easing to 275 billion pounds ($421 billion) from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009. Only 11 of 32 economists in a Bloomberg News survey predicted an increase in asset purchases.
The pound dropped after the decision, which came a day after a report showed Europe’s second-biggest economy grew less than previously estimated in the quarter through June and as Greece’s crisis strained money markets. The central bank said in a statement that slowing global growth and the turmoil in Europe “threaten the U.K. recovery.”
“I think it’s a dramatic intervention and signals the urgency of the situation,” said Brian Hilliard, chief U.K. economist at Societe Generale SA in London, who predicted a 50 billion-pound expansion. “I expect the size of the program to be increased further.”
The pound fell as much as 1.2 percent against the dollar after the decision to $1.5272. It traded at $1.5410 as of 5:04 p.m. in London. Bonds rose initially before reversing their gain, pushing the yield on the 10-year gilt up 4 basis points to 2.39 percent. U.K. stocks remained higher, with the FTSE 100 Index (UKX) up 3.7 percent.
‘Under Review’
Bloomberg
More:http://www.bloomberg.com/news/2011-10-06/bank-of-england-reactivates-bond-buying-program-to-stimulate-u-k-economy.html
“The news from the rest of the world in the past few months has been very poor,” King said in an interview with BBC Television. ‘The world economy has slowed, America has slowed, China has slowed, and of course particularly the European economy has slowed. That’s affecting our ability to engineer a recovery here so we took action today.’’
The MPC’s move marks a victory for Adam Posen a year after he started voting for more bond purchases. The central bank expects the new round of stimulus will take four months to complete and it will keep the program “under review.” It will buy gilts evenly across a range of maturities at three weekly auctions with an initial size of 1.7 billion pounds.
Also today, the bank held its benchmark interest rate at a record low of 0.5 percent, as forecast by all 53 economists in a separate survey.
“The news from the rest of the world in the past few months has been very poor,” King said in an interview with BBC Television. ‘The world economy has slowed, America has slowed, China has slowed, and of course particularly the European economy has slowed. That’s affecting our ability to engineer a recovery here so we took action today.’’
The MPC’s move marks a victory for Adam Posen a year after he started voting for more bond purchases. The central bank expects the new round of stimulus will take four months to complete and it will keep the program “under review.” It will buy gilts evenly across a range of maturities at three weekly auctions with an initial size of 1.7 billion pounds.
Also today, the bank held its benchmark interest rate at a record low of 0.5 percent, as forecast by all 53 economists in a separate survey.
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