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Chances rising the Bank of England will start buying assets again in March: poll

A bus passes the Bank of England in the City of London February 23, 2013. REUTERS/Neil Hall
A bus passes the Bank of England in the City of London February 23, 2013. REUTERS/Neil Hall

By Jonathan Cable

LONDON (Reuters) - Chances are rising that the Bank of England will decide to start buying assets again next week to support an economy teetering on the brink of a third recession in four years, a Reuters poll found on Thursday.

The poll of 64 economists, taken Feb 26-28, gave a median 40 percent probability the central bank would inject another wave of cash into the money supply next week, on top of the 375 billion pounds ($567.5 billion) of new money it has already pumped in.

That is higher than the 35 percent probability in a snap poll taken a week ago after minutes from the February meeting showed three of the nine Monetary Policy Committee (MPC) members - including outgoing Governor Mervyn King - voted for 25 billion pounds of additional bond purchases.

Even if March is not the trigger, there is a 60 percent chance they will unleash a fresh wave of cash - known as quantitative easing (QE) - before the year is out, up from 51 percent in last week's poll.

"It will depend on the itsy bitsy stuff (the data) and whether the pound goes up or down in the last few days so I am quite agnostic over the exact month but I think they will go soon," said Michael Saunders at Citi. He predicted the MPC will eventually pump in 450 billion pounds.

Sarah Hewin, economist at Standard Chartered, agreed.

"It is a close call, but we think that there will be a majority in support of QE in the coming months, and sooner rather than later," she said.

King and Paul Fisher, the Bank's executive director for markets, joined long-standing dove David Miles this month in arguing for an increase in bond purchases to 400 billion pounds from 375 billion pounds.

Deputy Governor Charles Bean said on Wednesday the Bank stood "ready to take further such action should it be warranted", a day after Fisher suggested the bank should buy more government bonds and over a longer period.

February marks the fourth time King has been in a minority since he became governor in 2003. The last time was in June last year - when there was a 5-4 split. The following month, a majority backed a 50 billion pound increase in asset purchases.

The BoE's QE program has been on ice since then.

"Past experience suggests that when more than one MPC member pushes for additional QE, the committee tends to deliver. For that reason, it does look likely that we will see additional asset purchases," said Peter Dixon at Commerzbank.

But he was highly skeptical it would do any good.

"Whilst this issue looks set to run and run, I am increasingly reminded of Einstein's definition of insanity - repeating the same process over and over again in the expectation of different results."

Britain's economy has broadly flat-lined over the last two years. After contracting by 0.3 percent in the dying months of 2012, if it shrinks again in the current quarter it would again meet the traditional definition of recession.

The poll suggested the Bank will only buy another 25 billion pounds, for 400 billion total, to support an economy that has suffered through two recessions in four years.

The pound slumped to a two-and-a-half year low against the dollar on Monday after ratings agency Moody's stripped the UK of one of its prized triple-A ratings and is down nearly 7 percent this year, lending support to exporters.

As in most recent polls the BoE is not seen shifting rates from the record low of 0.5 percent it chopped them to back in March 2009 until at least October next year - the end of the forecast horizon.

Indeed, only seven of the 64 economists polled see any movement in rates before then.

There has, in the meantime, been a sudden flowering of new ideas at the Bank of England, with everything from negative interest rates to a long-term commitment to bond-buying said to be up for discussion.

(Polling by Ashrith Rao Doddi and Sarmista Sen. Editing by Jeremy Gaunt.)

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