Nov. 2 (Bloomberg) -- The Bank of England may choose to risk doing too much rather than too little this week as Britain starts to fall behind the rest of the world economy.

Governor Mervyn King’s nine-member Monetary Policy Committee will expand its bond-purchase plan by 50 billion pounds ($82 billion) to 225 billion pounds on Nov. 5, according to the median forecast of 48 economists in a Bloomberg News survey. That would be the third increase since the program started in March.

Officials are juggling the danger that too much spending will weaken the pound and stoke another housing boom against the risk that too timid an approach will prolong the longest economic slump on record. Officials meet two weeks after a report showed Britain unexpectedly stayed in recession in the third quarter, while counterparts around the world plot exit strategies amid signs of a global recovery.

“The danger is you over-stimulate the economy, asset bubbles being the main risk as well as the pound,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “But if you wait to see the impact, it’s always too late.”

The Bank of England will also keep its benchmark rate at a record low of 0.5 percent on Nov. 5, said all 60 economists in a Bloomberg survey. The European Central Bank, which meets the same day, will maintain its main rate at 1 percent, a separate survey showed. The U.S. Federal Reserve will probably keep its benchmark close to zero on Nov. 4.

Pound Drop

The pound has dropped 6 percent against a basket of currencies of Britain’s main trading partners since August. While some Bank of England officials have signaled that should help exports, gross domestic product still shrank 0.4 percent in the third quarter. The pound traded at $1.6419 at 10:10 a.m. in London.

The bond plan has already split the Bank of England’s board once this year when King’s push for an increase to 200 billion pounds in August was rejected by six votes to three. King’s camp said that the consequences of more stimulus “might be less severe than the possible costs of acting too cautiously.” Chief Economist Spencer Dale argues a smaller increase was warranted because of the risk the program may stoke asset prices too much.

Reports since then have given ammunition to both sides. The third-quarter contraction wrong-footed all 33 economists in a Bloomberg survey and industrial production unexpectedly slumped in August to the lowest level since 1992.

‘Quick Recovery’

Royal Dutch Shell Plc, Europe’s largest oil company, said last week that a “quick recovery” in energy demand and prices is unlikely after reporting lower profits. Former central bank policy maker David Blanchflower said today in Dublin that “we’ve got to keep stimulating the economy.”

On the other hand, the benchmark FTSE-100 index has gained about 10 percent since the Bank of England last increased bond purchases, taking its gain since its March trough to 40 percent. A Hometrack Ltd. report today showed house prices increased a third month in October. Separately, manufacturing activity expanded at the fastest pace in two years in October, the Chartered Institute of Purchasing and Supply and Markit Economics said today.

Other central banks are indicating the time has come to withdraw some of the emergency measures introduced to stave off another Great Depression. Norway and Australia have already raised rates and ECB board member Axel Weber said last week the central bank may withdraw unlimited 12-months loans next year.

Tighter Stance

A slower U.K. exit and further bond purchases may hurt the pound, which has dropped 5 percent against the euro since the August decision.

“If others have tightening stances and the Bank of England is going full steam ahead with easing that could put further downward pressure on the currency,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam and a former U.K. Treasury official.

Britain’s struggle to escape recession is a blow for Prime Minister Gordon Brown, who must call an election by June and has trailed in opinion polls for almost two years. While he argues the recession reinforces the need for government action, the opposition Conservatives are using recoveries in the U.S. and the euro region as a weapon against him.

Deposit Rate

“Britain now stands out as the only major economy still in recession,” said opposition finance spokesman George Osborne on Oct. 29.

Policy makers may also consider lowering the rate paid on reserves held for commercial banks in a bid to encourage lending, though they may not make that move this week.

“It is a possibility, but it wasn’t discussed in the minutes to the October meeting” so is unlikely to happen this month, said Howard Archer, chief U.K. and European economist at IHS Global Insight in London. “You can’t rule it out particularly given that the economy is continuing to disappoint and lending is weaker than desired.”

Some economists argue that the third-quarter figures were so unexpected that the Bank of England may be reluctant to increase bond purchases on the back of that report. Former policy makers Charles Goodhart and DeAnne Julius said that the contraction in the three months through September shouldn’t overshadow other signs that the economy is improving.

“The third-quarter flash estimate puts the Bank of England on the spot in no uncertain fashion,” said Charles Dumas, chairman of Lombard Street Research who predicts that bank won’t expand the program this week. “But they’ll want to do as little as possible, given the extraordinary uncertainties.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net. Svenja O’Donnell in London at o sodonnell@bloomberg.net.

Last Updated: November 2, 2009 05:25 EST