Darling Suggests BOE May Print Money This Week

By Brian Swint

March 3 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling suggested the Bank of England could start printing money as soon as this week to help revive the economy as interest rates lose their potency.

“We’ve given them the levers,” Darling said, according to an interview in the Daily Telegraph published today in London. “They may decide this month that it’s appropriate to do so.” A Treasury official confirmed Darling’s comments.

Bank of England policy makers sought permission from the Treasury to create money to buy securities after last month’s interest rate decision, when they cut the key rate to a record low of 1 percent. The bank should get authority to use as much as 200 billion pounds ($283 billion) for purchases of government bonds and other assets, Daiwa Securities SMBC Europe Ltd. says.

“If I were the Bank of England, I would start by buying quite a lot of gilts, starting at the short end,” said Daiwa economist Colin Ellis, a former official at the central bank. “We know the bank is nervous about taking the rate all the way to zero. That Darling has given the levers shows the bank is willing to act.”

Data yesterday signaled the recession is intensifying. U.K. manufacturing shrank for a 10th month in February, according to a survey of factories. Consumer lending rose in January at the slowest pace since at least 1993.

Building Industry

Construction companies signaled in a survey last month that the building industry is contracting at the fastest pace in at least 12 years, Markit said today. The Treasury has unveiled a fund to provide finances to 13 billion pounds of government- sponsored building projects that have stalled because of a lack of bank finance.

Seven out 10 of companies in a survey by the Confederation of British Industry, the nation’s biggest business lobby, said access to finance worsened since the start of the credit squeeze. Firms questioned from Feb. 11 to Feb. 19 also expect conditions “to remain difficult” in the next three months, the CBI said in a statement. It surveyed 88 companies.

Bank of England Governor Mervyn King said last month that he hoped to be able to make a decision about so-called quantitative easing at this month’s two-day meeting, which will begin tomorrow.

Policy makers will this week cut the benchmark interest rate by a half-point to 0.5 percent, the lowest since it was founded in 1694, the median of 60 economists’ forecasts shows.

Minutes of the Feb. 5 decision said that the central bank and the Treasury would publish an exchange of letters regarding the details of planned asset purchases. That correspondence has yet to be released.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.