Bank to print extra 50 billion pounds

By David Milliken and Christina Fincher

LONDON (Reuters) - The Bank of England stepped up its campaign to boost the struggling economy, raising the size of its asset purchase programme on Thursday in a surprise move tantamount to printing an extra 50 billion pounds to get banks lending again.

The central bank kept rates at a record low of 0.5 percent as expected, but surprised markets by moving swiftly to reassure them that its scheme to buy up government and corporate bonds with newly-created money would last at least 3 months more.

Sterling lost ground against the euro and dollar on the news, but gilt futures more than halved earlier hefty losses that had taken bond yields back up to levels last seen in February, before Bank Governor Mervyn King had seriously mooted the policy of quantitative easing.

Traders had been worried the Bank would wait until next week's quarterly Inflation Report, or even next month's policy meeting, before deciding whether to expand the initial 75 billion pounds of asset purchases, which looked set for completion around the end of this month.

"We are a little taken aback by the decision to increase the quantitative easing target by 50 billion pounds. We had thought it more likely the Monetary Policy Committee would sit and wait to assess the impact of the existing programme rather than expand it right away," said Philip Shaw, economist at Investec.

"Clearly, committee members have been spooked by some poor backward-looking domestic and international economic data. But the statement also points out that forward looking numbers are showing promising signs."

ASSET PURCHASE BOOST

The Bank of England's quantitative easing policy aims to help the economy by ensuring inflation stays close to its 2 percent target even when output looks likely to suffer its worst year since the aftermath of World War Two.