Bank of England hints move to more stimulus

By ROBERT BARR | September 21, 2011 | 5:25 AM EDT

LONDON (AP) — The Bank of England appears to be gearing itself up to pump in billions more into the British economy to stimulate a faltering recovery, minutes to its last rate-setting meeting suggested Wednesday.

Though American economist Adam Posen was alone among the nine members to vote in favor of resuming asset purchases, "most members" agreed that the case for more stimulus had strengthened in the past month, according to the minutes of the September meeting of the Monetary Policy Committee.

"For some members, a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting," the minutes said.

All nine rate-setters also voted to keep the main interest rate unchanged at the record low of 0.5 percent.

Sterling tanked from $1.5681 to an 8-month low of $1.5611 as markets priced in the likelihood of more monetary stimulus in the months to come. The program, known as quantitative easing, was halted in December 2009 after 200 billion pounds ($320 billion) had been splashed out buying financial assets from banks.

Most analysts think the bank will hold off until it is armed with the first estimate of third-quarter economic growth and its quarterly economic projections. That suggests that more stimulus would not emerge until November.

In a report published Monday, the Bank estimated that the previous monetary stimulus raised GDP by as much as 1.5 percent to 2 percent at the peak, while adding up to 1.5 percentage points to the inflation rate. The article added, however, that the impact was very difficult to measure.

The hint from the Bank that it may pump more money into the economy comes a day after the International Monetary Fund cut its growth forecast for the British economy to 1.1 percent this year from its previous forecast of 1.7 percent in April. It trimmed its prediction for next year from 2.3 percent growth to 1.6 percent. The IMF also urged the government to slow down its austerity measures should growth fall even lower.

Expectations of a new shot of stimulus have grown as economic growth has slowed to 0.2 percent in the second quarter and Prime Minister David Cameron's government focuses on cutting spending to rein in the budget deficit.

Despite the austerity program, net public sector borrowing hit 15.9 billion pounds in August, the highest ever for that month, the Office for National Statistics said Wednesday.

That was an increase of 1.9 billion pounds from July.