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Market News

BoE needs to increase QE by 50 bln stg-Blanchflower

LONDON, Nov 5 (Reuters) - Bank of England policymakers must agree to top up the 175 billion asset purchase programme when it meets on Thursday to stop the economy “dropping off a cliff,” former Monetary Policy Committee member David Blanchflower said.

Writing in the Daily Telegraph newspaper, the ex-MPC member -- who has strongly criticised BoE Governor Mervyn King for not backing his initial calls to cut interest rates at the start of the financial crisis -- said quantitative easing should be increase by a further 50 billion pounds.

“It’s time for them to shape up and do their jobs, and take out more insurance to prevent the economy dropping off a cliff,” Blanchflower said, singling out MPC members Andrew Sentance, Paul Fisher, Charles Dean and Kate Barker as those likely to vote against expanding the QE programme.

BoE policymakers face their toughest call in months on Thursday, with early signs Britain may be emerging from recession dampening some enthusiasm for further injections of stimulus funds. [ID:nL4118511]

But Blanchflower said predictions the British economy was on the road to recovery could be far too optimistic.

“Most importantly, GDP in the third quarter was minus 0.4 percent. This is the sixth negative quarter in the row, making it the most serious downturn since the Second World War. And unemployment will continue its inexorable rise,” Blanchflower said.

“Things are going to get worse as the amount of fiscal stimulus is reduced once VAT is increased in the new year. There is still a possibility that the recession could become a depression. This is the outcome we must avoid.”

The MPC has voted unanimously at its last two meetings to keep QE unchanged at 175 billion pounds, but in August, BoE Governor King, David Miles and Tim Besley voted to increase the QE programme to 200 billion pounds. [ID:nMPCVOTE]

Blanchflower has called the six members who voted to leave QE unchanged in August the “feeble six,” and said “dithering” over increasing the amount of QE may have harmed the economy.

Analysts polled by Reuters are almost evenly split between the central bank topping up its 175 billion pound asset purchase programme by 25 billion pounds, 50 billion pounds, or calling an outright halt.

In fact, the only point they agree on is that interest rates will stay at 0.5 percent not just this month but well into next year as well.

“We believe the decision on QE is finely balanced and see the odds as 60:40 in favour of an extension versus the announcement of a halt,” said Simon Hayes, economist at Barclays Capital, who predicts a 50 billion pound top-up.

The Monetary Policy Committee decision is due at 1200 GMT on Thursday.

Reporting by David Sheppard; Editing by Bernard Orr

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