Bank slows pace of QE purchases

By David Milliken

LONDON (Reuters) - The Bank of England cut the pace at which it pumps money into the economy on Thursday after unexpectedly deciding not to expand its 125 billion pound asset buying scheme, raising fears it may stop purchases completely.

Financial markets had expected the central bank to increase the programme of quantitative easing by 25 billion pounds, as otherwise the last of the 125 billion pounds looked set to be spent on bonds and corporate debt in the next fortnight.

But instead the Bank reduced weekly gilt purchases to 4.5 billion pounds from 6.5 billion, with the last money to be spent on July 29 before it decides whether to fund future purchases at its August 6 policy meeting.

Gilt futures fell more than a full point and the pound rose around half a cent against the dollar as investors bet the Bank is now done with QE, though economists said there was still a chance the Bank might continue QE once it studied quarterly forecasts in next month's Inflation Report.

"They haven't closed the door on further purchases ... but (the fact that) they have reached this decision today ahead of the Inflation Report sends a very clear signal that that is probably it. Big gilt purchases are almost certainly behind us," said Ross Walker, UK economist at Royal Bank of Scotland.

A Reuters poll showed that 35 out of 56 economists still expected the Bank to increase QE to 150 billion pounds next month.

ECONOMIC FREE-FALL OVER

The economy was in free fall in February when the Bank first proposed boosting the economy by buying financial assets with newly printed money in an effort to persuade banks to lend more freely to the rest of the economy.