By Jennifer Ryan and Svenja O’Donnell March 4 (Bloomberg) -- Bank of England officials may keep their bond-purchase plan on hold today as the pound’s worst losing streak since October 2008 adds wind to the sails of Britain’s economic recovery. The currency, which has dropped 4 percent against the dollar in the past month, may provide extra stimulus as policy makers led by Governor Mervyn King wait for the 200 billion- pound ($302 billion) program to take full effect on an economy shaking off the deepest recession on record. The bank will keep the plan unchanged at noon today in London, all 45 economists in a Bloomberg News survey said. King said last month it was “far too soon” to call an end to the bank’s purchases as the economy struggles to grow and concerns about ballooning budget deficits from the U.K. to Greece threaten growth across Europe. The pound’s drop extended to a sixth day until yesterday on speculation the looming election will create a government too impotent to fix the nation’s public finances. “By definition the pound’s weakness is doing some of the easing,” Colin Ellis, an economist at Daiwa Capital Markets Europe and a former Bank of England official, said in a telephone interview. “Weaker sterling will benefit the economy and it’s another argument to sit on their hands. If conditions in financial markets are volatile the temptation will be to sit back and wait for things to calm down.” The pound has dropped 7 percent against the dollar this year and reached a 10-month low of $1.4783 on March 2. On a trade-weighted basis, sterling is down 4.7 percent since the start of January, making exports cheaper abroad. The pound was at $1.5113 yesterday as of 5:25 p.m. in London. Deficit Concern The currency has weakened on speculation neither main political party may win a majority in Parliament, hampering efforts to cut a budget deficit exceeding 12 percent of gross domestic product, on a par with Greece. The election is due by June at the latest. Prime Minister Gordon Brown has gained in opinion polls, narrowing the lead of the opposition Conservatives, after data showed the recession ended in the fourth quarter. A ComRes Ltd. poll published March 1 in the Independent newspaper showed support for David Cameron’s Conservatives at 37 percent, giving them a 5-point lead over Brown’s ruling Labour Party. Today’s decision comes a year after the bank started buying bonds with newly created money to fight the slump following the collapse of Lehman Brothers Holdings Inc. King told lawmakers last week that February, when the bank paused purchases, was a “very good time to take stock of what we’d done,” though officials “stand ready to do whatever seems appropriate.” Mixed Data Recent economic data have been mixed. While jobless benefit claims rose in January to 1.64 million, the highest since April 1997, reports this week by the Chartered Institute of Purchasing and Supply and Markit Economics showed the rebound in services and manufacturing gained momentum. “The weakness of sterling is having a powerful stimulative effect on the economy,” Neville Hill, an economist at Credit Suisse in London and a former U.K. Treasury official, said in a telephone interview. “The manufacturing sector and the export sector in general is benefiting a lot from this depreciation.” The pound’s drop may stoke consumer prices by pushing up the cost of imports, adding to the case for policy makers to pause their purchase plan. Inflation reached a 14-month high of 3.5 percent in January because of the drop in sterling and increases in sales tax and oil costs. “In the context of inflation significantly above target and the currency under some pressure, that strengthens the case for holding quantitative easing at its current level and shying away from extending it for a few months,” Simon Hayes, chief U.K. economist at Barclays Capital and a former Bank of England official, said in a telephone interview “I don’t see them moving before the election.” Pound Volatility Volatility in the currency in the past week won’t be a cause of concern to policy makers, said David Tinsley, an economist at National Australia Bank in London. King said in November that “the depreciation of sterling should lead to a recovery in economic activity,” pushing the pound down to the lowest level in a week against the dollar. “They didn’t seem worried about it back in November, why would they be worried about it now?” Tinsley, a former central bank official, said in a telephone interview. “August is the first time where we may see a change of policy, by which point there may be a small extension in quantitative easing if the economy looks weak.” To contact the reporters on this story: Jennifer Ryan in London at jryan13@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net

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