Bailey Hints at More BOE Easing to Help Shoulder Virus Costs

(Bloomberg) -- Bank of England Governor Andrew Bailey offered another hint that more bond purchases are on the way after figures showed a deep contraction at the end of first quarter.

He said it’s “pretty clear” investors expect more quantitative easing from the bank and that policy makers have kept the option open to do more than the 200 billion pounds ($240 billion) they announced in March. Investors have already stepped up bets on more loosening, and demand for government bonds has driven borrowing costs lower.

Bailey also acknowledged that the BOE’s actions are helping the government fund the enormous cost of economic aid in the coronavirus crisis.

The comments came hours after data showed the U.K. economy shrank almost 6% in March as the nation went into lockdown, plunging into what may be its deepest recession in more than three centuries. The government in response is pumping billions into support programs for companies and workers, many of which may last for months.

“What we can do -- providing the overall credibility of the framework remains in place, and independence is very important to that point -- is that we can help to spread over time the cost of this thing to society,” Bailey said in an interview on ITV television broadcast Wednesday. “That to me is important.”

According to ITV, Bailey was responding to a question about the cost of the support measures and whether the U.K. would have to return to austerity to rein in the public finances.

“There are more choices, and I hope those choices will be looked at very seriously,” he said.

In its reaction to the crisis, the BOE has cut interest rates and said it will buy additional government and corporate debt, and it may add to the target as soon as next month.

At the May policy meeting, the majority of the nine-member committee “wanted to keep the option open” of more purchases and wait for more data on the economy, instead of putting “a number on it” at that time, Bailey said.

Two policy makers are already pushing for an additional 100 billion pounds of QE. Bailey reiterated that they stand ready to do more if needed.

Investors have already stepped up bets on more easing, and demand for government bonds has driven borrowing costs lower. Two-year gilt yields fell two basis points to -0.031% Wednesday, having at one point reached -0.046%.

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