BoE to increase aid plan by $160 bn

The Bank of England will increase its emergency bond-purchase plan by £100 billion ($160 billion) to aid the economy as the government cuts spending, 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 in an e-mailed statement today.

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 in the statement.

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 LLP’s Item Club will say in a report tomorrow that the UK economy is heading for “a soft patch” this winter as the budget squeeze curtails growth, according to an e- mailed statement.

The economic recovery will “gradually” pick up momentum after that, the research group, which uses the same forecasting model as the UK Treasury, will say.

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 will say. A previous forecast of 2.2 per cent growth in 2011 will be unchanged, the group will say.

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