BOE Will Expand Stimulus by 100 Billion Pounds, CEBR Predicts

The Bank of England will expand its stimulus program by 100 billion pounds ($160 billion) to aid the economic recovery, the Centre for Economics and Business Research said.

The central bank will also keep its benchmark interest rate at a record low of 0.5 percent until at least “late” 2012, the London-based group said in an e-mailed statement yesterday. The bank kept its stimulus plan at 200 billion pounds this month.

Britain faces the largest public spending cuts since World War II as the government tackles the record budget deficit. The British Chambers of Commerce earlier this month backed a call by policy maker Adam Posen for the central bank to expand its bond stimulus plan as recent data indicate the recovery has slowed.

“We expect the authorities to push the monetary policy levers hard in the opposite direction to the fiscal policy levers,” the CEBR said in the statement.

The CEBR’s forecast for economic growth in the first three months of 2011 is 0.1 percent, which implies there is almost a 50 percent chance the economy will contract during the quarter, according to the report.

Ernst & Young LLP’s Item Club said in a report today that the U.K. economy is heading for “a soft patch” this winter as the budget squeeze curtails growth, according to an e-mailed statement.

The economic recovery will “gradually” pick up momentum after that, said the research group, which uses the same forecasting model as the U.K. Treasury.

Growth Forecasts

Gross domestic product will rise 1.4 percent this year, compared with a prediction in July for 1 percent expansion, the Item Club said. A previous forecast of 2.2 percent growth in 2011 was unchanged, the group said. Chancellor of the Exchequer George Osborne will announce details of his spending cuts on Oct. 20.

Employers are lifting recruitment and wage freezes as they look to increase hiring to take advantage of the recovery, the Confederation of British Industry and The Harvey Nash Group said in a separate report today.

The number of companies operating a recruitment hold has fallen to 7 percent and the number with wage freezes in place has dropped to 14 percent, the groups said in a biannual survey. That compares with a peak of 61 percent and 55 percent respectively in the spring of 2009, they said.

The CBI and Harvey Nash surveyed 330 U.K. employers, with a total of almost two million staff, between July 16 and Aug. 13.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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Bank of England Governor Mervyn King

Paul Thomas/Bloomberg

The nine-member Monetary Policy Committee, led by Governor Mervyn King, seen here, held the target for bond holdings at 200 billion pounds ($319 billion).

The nine-member Monetary Policy Committee, led by Governor Mervyn King, seen here, held the target for bond holdings at 200 billion pounds ($319 billion). Photographer: Paul Thomas/Bloomberg