Bank "open-minded" about more stimulus

By David Milliken and Matt Falloon

LONDON (Reuters) - The Bank of England has an open mind on the need to pump more newly-printed money into the economy, Governor Mervyn King said on Wednesday, after the central bank forecast below target inflation.

A week after the Bank raised its asset-buying programme by another 25 billion pounds to 200 billion, its quarterly Inflation Report suggested policymakers see some signs of recovery but have not ruled out further action to boost the economy.

The more dovish than expected outlook, with interest rates likely to remain at a record low of 0.5 percent for some time to come, drove bond markets higher and sterling lower and surprised many analysts who had thought the Bank's quantitative easing scheme would not be expanded further.

"It certainly would be wrong to conclude we've decided that. We've made no judgement at all, we've a completely open mind whether to do more asset purchases or not. What we did last week was not a first step towards anything," King said.

The Bank's decision last week halved the pace at which it had been buying assets -- mainly government bonds -- with newly-created money, a policy aimed at lifting Britain out of its sharpest downturn in decades.

The central bank's new forecasts were more upbeat on the economy than the last set in August, but do not incorporate the extra fiscal tightening that will likely take place if the opposition Conservatives win the election next year as expected.

The Labour government, which expects to halve Britain's ballooning budget deficit over four years, will outline updated fiscal policy plans on December 9 with the publication of its pre-Budget report.

"In short, it's too soon to rule out further monetary policy action. At the very least, any tightening looks a long way off," said Jonathan Loynes, chief European economist at Capital Economics.