Bank faces tough call on QE expansion

By Fiona Shaikh

LONDON (Reuters) - Bank of England policymakers face an unusually tough decision this week: whether to expand the 175 billion pound asset purchase programme at a time when Britain is showing signs of recovery but remains stuck in recession.

Two-thirds of analysts in a Reuters poll reckon the central bank will decide to expand its quantitative easing (QE) programme, with opinion evenly split between a 25 billion pound and 50 billion pound increase.

Following is a summary of possible scenarios for the BoE's decision, which will be announced at midday on Thursday.

BOE UPS QE BY 25 BLN STG, HOLDS INTEREST RATES AT 0.5 PCT

Policymakers noted the "substantial" impact of their QE programme on asset prices, and may view a smaller expansion of the scheme and a slower pace of purchases as a way of providing support to the economy as it emerges from recession.

* Probability: joint front-runner

* Market impact: Gilt prices could sell off modestly, driving the yield on 10-year gilts up around 5-10 basis points on the day, on disappointment that a bigger extension was not delivered. Yields are seen correcting by 30-40 basis points thereafter on the perception the central bank is winding down its asset-buying programme.

BOE UPS QE BY 50 BLN STG, HOLDS RATES