BOE Seen Boosting Bond Buying as Bailey Stands Ready to Act

(Bloomberg) -- The Bank of England is expected to step up its battle against the economic impact of coronavirus by boosting bond purchases next week, with Governor Andrew Bailey promising policy makers stand ready to act to combat the nation’s slump.

The nine-member Monetary Policy Committee will vote unanimously to raise the asset-purchase target by 100 billion pounds ($126 billion) to 745 billion pounds on Thursday, and keep the benchmark interest-rate at 0.1%, according a Bloomberg survey. Some economists expect an even larger increase of as much as 200 billion pounds.

The economy shrank more than 20% in April, losing some 18 years of output. In a television interview Friday, Bailey repeated a pledge that officials stand ready to take more action to support the economy.

While some degree of rebound is likely as lockdown restrictions are slowly lifting, officials remain wary of longer-term scarring effects. Quantitative easing has become a crucial tool in policy makers’ armory during the crisis as it allows them to keep market borrowing costs low and stable, easing the government’s job in funding an unprecedented fiscal response.

Bailey said the U.K. was still very much in the midst of the crisis, but while the contraction was “dramatic and big,” it was broadly in line with the BOE’s forecasts. He added there were signs the economy was slowly recovering.

While the BOE is expected to keep rates unchanged on June 18, some economists see a cut to zero later this year. That would fuel speculation that policy makers may eventually lower them into negative territory -- a policy the central bank is currently reviewing.

Still, that’s largely seen as a last resort, with additional asset purchases, tweaks to the BOE’s lending program, or even a form of yield curve control that targets specific bond market rates seen as more likely options.

©2020 Bloomberg L.P.