Bank to expand stimulus package by $212b to aid British recovery

The Bank of England will expand its stimulus programme by £100 billion ($212 billion) to aid the economic recovery, the Centre for Economics and Business Research said.

The central bank will also keep its benchmark interest rate at a record low of 0.5 per cent until at least late 2012, the London-based group said yesterday. The bank kept its stimulus plan at £200 billion this month.

Britain faces the largest public spending cuts since World War II as the Government tackles the record budget deficit. The British Chambers of Commerce earlier this month backed a call by policy maker Adam Posen for the central bank to expand its bond stimulus plan as recent data indicate the recovery has slowed.

"We expect the authorities to push the monetary policy levers hard in the opposite direction to the fiscal policy levers," the CEBR said.

The CEBR's forecast for economic growth in the first three months of 2011 is 0.1 per cent, which implies there is almost a 50 per cent chance the economy will contract during the quarter, according to the report.

Ernst & Young said in a report yesterday that the British economy is heading for "a soft patch" this northern winter as the budget squeeze curtails growth, according to an emailed statement.

The economic recovery will "gradually" pick up momentum after that, said the research group, which uses the same forecasting model as the UK Treasury. Gross domestic product will rise 1.4 per cent this year, compared with a prediction in July for 1 per cent expansion, the Item Club said.

A previous forecast of 2.2 per cent growth in 2011 was unchanged, the group said.

Chancellor of the Exchequer George Osborne will announce details of his spending cuts on October 20.

Employers are lifting recruitment and wage freezes as they look to increase hiring to take advantage of the recovery, the Confederation of British Industry and The Harvey Nash Group said in a separate report.

The number of companies operating a recruitment hold has fallen to 7 per cent and the number with wage freezes has dropped to 14 per cent, the groups said in a biannual survey.

That compares with a peak of 61 per cent and 55 per cent respectively in the spring of 2009, they said.

The CBI and Harvey Nash surveyed 330 British employers between July 16-August 13.

- Bloomberg