By Jonathan Cable
LONDON (Reuters UK) - The Bank of England's Monetary Policy Committee will likely raise its quantitative easing programme next week as part of its battle to revive an economy still mired in recession, a Reuters poll showed on Wednesday.
Median forecasts from the poll of over 60 analysts, taken Oct 26-28, found roughly two-thirds saying the MPC would announce an increase to its QE spending at the end of its meeting next Thursday, likely by 25 billion pounds.
The last Reuters poll predicted they would stop at 175 billion.
"With the disappointing GDP data for Q3, it seems likely that the MPC will take out some further insurance against a continuing recession by further increasing its QE programme at its November meeting," said John Hawksworth at PwC.
Preliminary data released last week showed the British economy shrank by 0.4 percent in the third quarter, shocking markets that had expected a modest return to growth and marking the country's longest recession on record.
But not all the economic data have been gloomy.
British retail sales grew at their fastest pace in almost two years during October, according to business group the CBI. And activity in the dominant services sector climbed to a two-year high in September, leading some economists to believe the GDP weakness is overblown.
"We wouldn't be surprised to see this third quarter GDP number revised up a bit," said Melanie Baker at Morgan Stanley.
"We therefore stick to our central forecast of no QE extension at the November meeting, but we continue to think that communication around this decision will be very careful, leaving the door open for resuming QE if they feel that is necessary," she added.
A 25 billion pound increase would take the total spend on the purchases, mainly of government bonds, to 200 billion. The median from the poll suggests that is where the bank will stop.
The highest forecast saw the MPC eventually spending 275 billion pounds, higher than the 250 billion pounds maximum seen in a poll at the start of this month. Sixteen economists said 175 billion would be the total, 19 said 200, 17 said 225, four said 250 and only one said 275.
So far the central bank has been given permission by finance minister Alistair Darling to spend 200 billion pounds on the asset purchase programme.
Median forecasts see the Bank of England holding the main interest rate at a historic low of 0.5 percent until July 2010 at the earliest, in line with a poll taken two weeks ago.
Rates were then seen rising to 0.75 percent by September and then finishing off 2010 at 1.0 percent.
The central bank is tasked with keeping inflation at two percent. Data released earlier this month showed it fell more than expected to its lowest annual rate in five years of just 1.1 percent in September. Across the channel, the European Central Bank, which has been waging its own war on recession, is also expected to keep rates on hold at the record low of 1.0 percent when it meets next week and leave them there until the fourth quarter of next year.
(Polling by Bangalore Polling Unit; editing by Stephen Nisbet)
