BOE Forecast to Boost Bond-Buying in June to Sustain Virus Fight

(Bloomberg) -- The Bank of England’s promise that it’s willing to do more to help the fight against the coronavirus pandemic is resonating with economists, who expect an increase in asset purchases at the next meeting.

Almost half of the 15 analysts surveyed by Bloomberg expect officials to raise their buying target by 100 billion pounds ($122 billion) to 745 billion pounds on June 18. Three said it’ll go even higher.

BOE Forecast to Boost Bond-Buying in June to Sustain Virus Fight

The BOE’s bond program is critical for the government’s efforts to shield workers and companies from what could be the deepest recession in three centuries. Governor Andrew Bailey acknowledged last week that the central bank’s actions are keeping borrowing costs low on the massive debt burden that is building up.

He also said it’s “pretty clear” that investors expect more quantitative easing. At this month’s meeting, two of the bank’s nine policy makers voted for an immediate increase of 100 billion pounds.

Government borrowing will likely exceed 300 billion pounds in the current fiscal year, according to the nation’s fiscal watchdog. Even so, borrowing costs have dropped to record lows. The yield on two-year gilts touched as low as -0.048% on Friday.

What Bloomberg’s Economists Say

“A significant amount of debt will move onto the Bank of England’s balance sheet this year. The central bank lifted its asset purchase target by 200 billion pounds in March and we expect it to announced a similar amount again by August.”

-Dan Hanson. Read his U.K. INSIGHT

While the BOE has already lowered its benchmark interest rate to a record-low 0.1%, Bailey has pushed back against market bets that officials will cut to below zero.

That leaves the asset-purchase program as the primary tool. The BOE decided in March to add more government and corporate debt, but those purchases are set to be filled by around the end of June.

Bailey is scheduled to testify to lawmakers about the economic impact of the pandemic alongside deputies Ben Broadbent and Jon Cunliffe on Wednesday. Policy maker Silvana Tenreyro will speak on a webcast about the BOE’s response on Monday.

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