Goodhart Says BOE May Pause Bond-Purchase Program

By Frances Robinson and Mark Barton

Oct. 30 (Bloomberg) -- Former Bank of England policy maker Charles Goodhart said the bank may scale back or pause its bond- purchase program next week as officials around the world start to pull back stimulus for their economies.

“The expansion of quantitative easing will be reduced in scale and possibly paused for a time,” Goodhart said in an interview with Bloomberg Television in Frankfurt today. The Bank of England will follow “slightly more cautiously,” he said.

Governor Mervyn King and other Bank of England officials will decide on Nov. 5 whether to expand their 175 billion-pound ($259 billion) plan after a report showed last week the U.K. economy unexpectedly contracted in the third quarter. That’s prolonging its longest slump since records started in 1955 even as the U.S., Japan and Germany emerge from their own recessions.

The economy contracted 0.4 percent in the three months through September, the U.K. statistics office said Oct. 23.

“We were always likely to be worse hit than most other countries because we had such a large proportion of our economy tied up in finance and housing,” Goodhart said. “I must confess that like many others, I have certain doubts about the third quarter GDP figure.”

While some economists say the first reading of gross domestic product tends to get revised up, data show that of the last 18 quarters, 10 were revised down, there were six upward revisions and two were left unchanged.

Bond Purchases

Most economists expect the Bank of England to extend its bond-purchase program to 225 billion pounds next week, according to the median of 35 replies to a Bloomberg News survey as of 8:29 a.m. in London.

Policy makers from the Group of Seven are starting to pull back stimulus measures as some smaller nations such as Australia and Norway tighten policy in response to a global recovery and surging asset prices. The Bank of Japan said today it will stop buying corporate debt at the end of the year and Germany’s Axel Weber signaled yesterday the European Central Bank may pull back its handouts of emergency liquidity next year.

Some Bank of England officials have indicated they may support more quantitative easing. Adam Posen said in his first speech since he became a Monetary Policy Committee member on Oct. 27 that the asset-purchase program is unlikely to spark inflation because its purpose is to prevent prices from falling. Posen said stimulus programs shouldn’t be withdrawn yet.

Goodhart said he remains to be convinced about the strength of the euro-region’s economy.

“I don’t think that the recovery in Europe is anything much to write home about,” he said, as the rising euro and expiry of the German government’s short-term working program and cash-for-clunkers subsidy endanger growth. “I’m less comparatively depressed about the U.K. falling behind everywhere else than a number of other people are.”

To contact the reporters on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net Mark Barton in London at mbarton1@bloomberg.net