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BoE to Exit QE Program in 6-12 Months: Poll

Thursday, 1 Oct 2009 | 10:41 AM ET

The Bank of England has allocated all it intends to in quantitative easing, and will not exit the bond purchase program for another six months at least as the economic outlook remains shaky, a Reuters poll showed.

Median forecasts from the poll of 60 analysts, taken Sept. 28-Oct. 1, suggest the central bank will limit its purchases of mainly government bonds to 175 billion pounds.

However, a third of respondents said the Monetary Policy Committee could expand the program further when it meets on Oct. 7-8.

"You can never rule out that they will surprise but I think they have probably done enough," said Michael Saunders at Citi.

The highest forecast saw the MPC eventually deciding to spend 250 billion pounds, and both the median and maximum forecasts were in line with a poll taken last month. Median forecasts see the MPC holding the main interest rate at an historic low of 0.5 percent until July 2010 at the earliest, in line with a poll taken in early September.

Rates were seen rising to 0.75 percent by September next year and then finishing off 2010 at 1.25 percent.

"The MPC will likely remain cautious and keep monetary policy loose for a considerable period in our central case. It is unlikely to even consider raising rates until about mid-2010," said Melanie Baker at Morgan Stanley.

The central bank surprised markets in August by deciding to expand its quantitative easing program by 50 billion pounds, twice as much as expected. It then delivered a second shock when minutes revealed that Governor Mervyn King and two others on the nine-strong MPC had wanted to raise it by 75 billion pounds to 200 billion.

Economists were split on when the central bank would exit the QE program, with 20 of 53 saying this would happen in 6-12 months. Fifteen said it would be in 1-2 years, and nine said it would be more than two years. Nine analysts said the bank would exit within six months.

These are generally slightly earlier than in last month's poll as upbeat economic data encourage views that the worst has now passed.

The BoE has struggled to revive a battered economy which shrank 0.7 percent in the second quarter, but it is expected to have returned to growth in the third quarter.

British consumer morale, often one of the first indicators of economic recovery, saw its biggest monthly boost in more than 14 years in September.

The FTSE 100 index of leading shares had its best three months on record in the third quarter, gaining 21 percent, but a Reuters poll on Wednesday showed there is little room for more gains in the near term.

However, factory output continued to contract modestly last month after employers cut jobs for a 17th straight month and the pace of pick-up in new orders slowed.

Across the channel, the European Central Bank is also seen keeping rates on hold at a record low of 1.0 percent next week as it wages its own battle to bring the 16-nation bloc out of recession.