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By Svenja O’Donnell

June 4 (Bloomberg) -- The Bank of England may keep up the pace of bond purchases today as officials weigh whether they are already printing enough money to revive the British economy.

Governor Mervyn King’s forecasts last month showed it needs to spend 125 billion pounds ($207 billion) of newly printed money in U.K. debt markets to fight off the recession. Policy makers will still refrain from expanding that plan in their decision at 12 p.m. today in London, according to all but 37 of 40 economists in a Bloomberg News survey.

Service industries expanded for the first time in a year last month and Nationwide Building Society’s house price index unexpectedly jumped, stoking optimism the recession is past its worst. While Deputy Governor Charles Bean and other officials are discussing how the bank might exit its bond purchases, King still says it will “take time” for the economy to heal.

“There’s no way they want to say we’re out of the woods,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “Things are moving slowly in the right direction but they’ll be cautious. They won’t be in a rush to do anything, let alone cut the facility back.”

The Bank of England will also keep its benchmark interest rate at a record low of 0.5 percent at today’s meeting, according to all 62 economists in a Bloomberg survey. The European Central Bank will keep its rate at 1 percent today, according to the median of 54 economists’ forecasts.

Government Turmoil

Turmoil in Prime Minister Gordon Brown’s government has overshadowed the bank’s decision as doubt grows on whether Chancellor of the Exchequer Alistair Darling will keep his job managing the economy. Four ministers have resigned from Brown’s Cabinet this week, and he twice sidestepped questions on Darling’s future in Parliament yesterday.

Consumers have still become more hopeful that Britain will emerge from the worst recession since World War II, with Nationwide’s confidence index rising to a six-month high. Markit’s surveys of services, construction and manufacturing all rose last month, and Nationwide says house prices jumped 1.2 percent, the most since 2007.

Kingfisher Plc, Europe’s largest home-improvement retailer, said on June 2 that first-quarter profit rose more than expected on a rebound in same-store sales at its U.K. B&Q chain.

“Green shoots are blossoming,” said Alan Clarke, an economist at BNP Paribas SA in London. “Still, the Bank of England don’t want to go and get ahead of themselves. Unemployment will continue to rise, and that will put downward pressure on inflation, which is what the bank targets.”

‘Early Days’

David Blanchflower, who left the rate-setting panel last week, said on June 1 that it is still “early days” to gauge whether the bank’s policies are having an effect and predicted jobless claims may keep rising by 100,000 per month. Lloyds Banking Group Plc, Britain’s biggest mortgage bank, said yesterday it will eliminate 510 additional jobs in the U.K.

The Monetary Policy Committee said last month that there was “uncertainty” about the impact of the bond plan so far. Some policy makers favored spending the full authorized total of 150 billion pounds, though they said there was “no pressing need” to do so immediately. The panel also said it will seek permission to print even more money than the maximum if needed.

Rising bond yields have muted its impact as investors demand higher returns amid a surge in government borrowing. Yesterday, the yield on the 10-year U.K. government bond was at 3.79 percent, 11 basis points higher than on May 7, the date of the bank’s last meeting. It fell as low as 2.95 percent on March 13 following the bank’s announcement to start purchasing gilts.

‘Tricky Judgment’

The bank faces a “tricky judgment” on when to exit the money-printing plan, which will be guided by the bank’s target for consumer prices, Bean said on May 22. Inflation may not reach the 2 percent goal within three years on the current spending plan, and the economy faces a “slow and protracted recovery,” King said on May 13.

Bean also predicted that the supply of credit will “remain impaired for some while” because banks don’t feel secure enough to lend normally. British manufacturers are still seeing an increase in the cost of borrowing and no improvement in access to financing, the EEF lobby group said in a survey today.

“Credit conditions are still pretty tight,” said Neville Hill, an economist at Credit Suisse Group in London and a former U.K. Treasury official. “I expect nothing from the bank now, but the risks are they’ll still feel the need to do something next month.”

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