Aug. 21 (Bloomberg) -- Bank of England Governor Mervyn King would have “frightened the markets” had the bank expanded its bond-purchase plan this month by more than it decided, said Charles Goodhart, a former U.K. policy maker.

The bank’s nine-member Monetary Policy Committee voted 6-3 on Aug. 6 to raise the total it will spend buying assets by 50 billion pounds to 175 billion pounds, with King among the minority seeking a 75 billion-pound increase, according to minutes of the meeting published Aug. 19.

Given that many investors had not anticipated any enlargement, a larger increase would have been “quite dangerous,” Goodhart, who sat on the committee from 2002 to 2004, said in a Bloomberg Television interview yesterday at the Federal Reserve Bank of Kansas City’s annual symposium.

“To go on pumping in an enormous lot would have rather frightened the markets,” Goodhart, a professor emeritus at the London School of Economics, said in Jackson Hole, Wyoming. “It could have had a dangerous, psychological effect.”

Twenty-three of 44 economists in a Bloomberg News survey had predicted the Aug. 6 decision to increase the buying of assets, and the rest forecast no further purchases. Bond yields and the pound fell that day.

“It was quite a shock to markets,” said Goodhart, who endorsed the increase in purchases that was approved.

The argument for a smaller extension included that “the most immediate downside risks to the economy seemed to have receded,” the minutes of the meeting said.

The bank can still enhance its program in coming months should the economy require it with the housing industry key to the strength of the recovery, Goodhart said. “It depends on the way the economy develops,” he said, noting it remained “fragile.”

To contact the reporter on this story: Simon Kennedy in Jackson Hole at skennedy4@bloomberg.netKathleen Hays in Jackson Hole at khays4@bloomberg.net.

Last Updated: August 20, 2009 19:00 EDT