BOE Should Buy as Much as 200 Billion Pounds in Bonds, BCC Says

By Brian Swint

Oct. 13 (Bloomberg) -- The Bank of England should expand its bond-purchase program to as much as 200 billion pounds ($316 billion) next month to secure Britain’s recovery from recession, the British Chambers of Commerce said.

“With quantitative easing, there’s still scope for some more,” David Frost, director general of the BCC, said in a Bloomberg Television interview. “This fragile recovery we’ve started to see really needs to be nurtured, so we’re saying perhaps another 25 billion pounds could be put into that.”

Bank of England policy makers signaled they will reassess the 175 billion-pound program in November after Governor Mervyn King was outvoted in August in his push for a bigger stimulus. The BCC’s quarterly survey, released today, showed that the U.K. struggled to emerge from the worst economic slump in a generation during the third quarter.

While business confidence among manufacturers rose to the highest since the first quarter of 2008 in the three months through September, the survey of output and orders suggests that gross domestic product either stagnated or fell, said David Kern, chief economist the BCC.

The index for manufacturing domestic sales rose to minus 10 from minus 37, and the index for export sales climbed to zero from minus 16. For services companies, the domestic sales index rose 15 points to minus 1, and the exports index increased to 6 from minus 10, the BCC said. The survey covered more than 5,500 companies.

Export Demand

The pound’s 20 percent drop against the dollar since the middle of last year is supporting sales abroad, Frost said.

“Clearly it’s helping,” Frost said. “But the growth of export demand depends very much on the global recovery.”

The results of the survey “support our assessment that the U.K. economy is on the brink of leaving recession,” Kern said. “However, the improvement is not sufficiently strong to allow us to conclude without a doubt that GDP has already returned to positive growth.”

The Confederation of British Industry, the U.K.’s biggest employers’ lobby, said Sept. 23 that the economy probably grew 0.3 percent in the third quarter and that the Bank of England is likely to cap its bond purchases at the current 175 billion pounds. The statistics office publishes its first estimate of gross domestic product on Oct. 23. The Bank of England’s next decision is on Nov. 5.

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