Bean Says Darling May Allow Reasonable Amount More for BOE Plan

By Brian Swint

July 15 (Bloomberg) -- Bank of England Deputy Governor Charles Bean said U.K. finance minister Alistair Darling would allow the bank to surpass the 150 billion-pound ($245 billion) ceiling for asset purchases by a “reasonable amount.”

“If we felt we needed to do more than 150 billion then we could write to the chancellor and ask him for permission,” Bean said in a television interview with the BBC posted on its Web site yesterday. “We would expect him to let us do a reasonable amount more but ultimately that will be something for the governor to discuss with the chancellor when the time comes.”

The U.K. central bank said last week it will wait until August to decide whether to expand the program from its current total of 125 billion pounds as policy makers fight the threat of deflation. Data yesterday showed inflation slowed below the bank’s 2 percent target for the first time in 2007, and officials predict it will weaken further.

With the bank due to review its economic forecasts next month, August “is a natural point for us to take stock, decide whether we feel we need to do more or whether it would be a good time to pause for a little bit,” Bean said.

He dismissed concerns about inflation, which slowed to 1.8 percent in June, compared with 2.2 percent in May. Price gains have weakened after the economy contracted by the most in a half-century in the first quarter.

Inflation Risk

“We’re not going to get inflation without having had a recovery first,” Bean said. “We’ll get inflation if we pump too much extra money into the economy and then we don’t withdraw it fast enough as the economy picks up.”

The central bank will probably use “a mix of” interest-rate increases and selling the assets it has bought when it decides to reverse its policy, Bean said.

In a separate interview published in today’s Herald newspaper during a visit by Bean to Scotland, he said that the bank faces a “tricky judgment” about when to withdraw the stimulus in the economy. The Bank of England won’t want to leave it too late or do it too soon, he said, according to the newspaper.

The bank’s asset purchases will help sustain a recovery in the “back end” of 2009 and in 2010, Bean told the Herald. Banks are still obviously in a “fragile state,” the newspaper cited him as saying.

The next interest-rate decision is on Aug. 6.

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