Sumeet Desai
6 November 2009
London — The Bank of England increased its bond-buying programme by £25b n to £200b n yesterday and analysts said it would be the last expansion of the scheme to revive Britain's recession-hit economy.
Sterling went up about a cent against the dollar and government bonds tumbled as many investors had expected a bigger expansion of the eight-month-old programme to buy assets, mostly UK government bonds, with newly-created money -- otherwise known as quantitative easing (QE).
"We suspect that this will be the final extension to the QE programme unless the economy suffers a major relapse in 2010," said Howard Archer, economist at IHS Global Insight.
The Bank of England -- which also left interest rates unchanged at a record low of 0,5% as expected -- said that the bond purchases would take another three months to complete and had been increased because any economic recovery was likely to be slow.
The QE programme started in March when the Bank of England first cut interest rates to 0,5% with a promise to buy £75b n of assets in three months.
The scheme was then expanded by £50b n each in May and August. Economists said any interest rate rises were still a long way off.
The US Federal Reserve this week also signalled rates would be kept ultra-low for some time to come and the European Central Bank (ECB) yesterday left borrowing costs at a record low of 1% as expected.
The ECB said that one-year loans to commercial banks would not be repeated next year. The British economy shrank 0,4% in the third quarter, marking the longest period of recession since the Second World War , according to official data.
The numbers are in contrast with earlier recoveries in the US and euro zone countries.
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