By Svenja O’Donnell Dec. 10 (Bloomberg) -- The Bank of England stuck to its plan to buy as much as 200 billion pounds ($326 billion) in bonds as officials seek to ensure the economy’s escape from the longest recession on record. The Monetary Policy Committee, led by Governor Mervyn King, kept the target for its asset-purchase program unchanged today, as predicted by all 38 economists in a Bloomberg News survey. The central bank also held the bank rate at a record low of 0.5 percent, according to a statement in London. Policy makers said last month that the most “natural” time to assess the so-called quantitative easing program again will be in February, when they will have more evidence of the economic pickup and new forecasts. Chancellor of the Exchequer Alistair Darling said today he wants to keep up support for the economy until a recovery is secured. “They should do more quantitative easing, but they probably won’t,” said Alan Clarke, an economist at BNP Paribas in London. “They’ll probably pause. The first interest rate hike is a long, long way off.” The pound rose against after the decision. Sterling was up 0.5 percent against the dollar on the day, trading at $1.6288 as of 12:29 p.m. in London. The yield on the 2-year gilt climbed 6 basis points to 1.166 percent. Rate Survey The bank’s decision to keep the interest rate unchanged was predicted by all 53 economists in a Bloomberg News survey. Iceland’s central bank cut the main interest rate by 1 percentage point to 10 percent today. The Swiss National Bank left its benchmark, the three-month Libor target, at 0.25 percent, while taking its first step to exit emergency measures by stopping purchases of corporate bonds. King said last month he has an “open mind” on whether to do further bond purchases as he weighs the risk that withdrawing stimulus too soon will jeopardize the recovery. The Bank of England has now spent more than 187 billion pounds of newly created money on bonds. The bulk of its purchases have been in gilts, with corporate securities accounting for the rest. Prime Minister Gordon Brown is trying to cement the economy’s recovery in time to win the next election, due by June next year. Britain’s opposition Conservative Party had support from 38 percent of voters, compared with 30 percent for the ruling Labour Party, a Populus opinion poll for the London-based Times showed this week. Darling’s Forecast Darling predicted yesterday that the economy will expand as much as 1.5 percent next year after contracting 4.75 percent in 2009. He pledged to increase some taxes on income as the recession drives up U.K. government borrowing. Public spending generally “will be much, much tighter,” Darling said in a Bloomberg Television interview today. “I want to start that process once I’ve got recovery established. That’s why we’re continuing to support the economy now.” Some indicators suggest the recession is over. An index of service company growth stayed close to a two-year high in November, the Chartered Institute of Purchasing and Supply and Markit Economics said last week. Unemployment claims rose in October at the slowest pace in 18 months. Gross domestic product rose 0.2 percent in the quarter through November, an estimate this week by the National Institute of Economic and Social Research showed. Company Profits Mulberry Group Plc, the U.K. maker of the Bayswater luxury leather handbag, said today that results for the full year will be “substantially” ahead of analyst forecasts. DS Smith Plc, owner of the Spicers office products brand, said it will likely exceed full-year expectations. While the Bank of England has been trying to keep a lid on yields with its purchases of government bonds, it has also pursued other measures to aid the recovery. Policy makers discussed last month whether to cut the deposit rate to spur lending. “It seems as though it has been discussed but it’s not at all clear there’s strong enough consensus to go ahead with that,” Neil Mackinnon, an economist at VTB Capital Plc and a former U.K. Treasury official, said before the decision. “I’m not sure just buying up more gilts is necessarily the right thing to be doing.” To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net;

Source