Finance counsels

Bank of England Deputy Governor Charles Bean said U.K. finance minister Alistair Darling would allow the bank to surpass the 150 billion-pound ($245 billion) ceiling for asset purchases by a “reasonable amount.”

“If we felt we needed to do more than 150 billion then we could write to the chancellor and ask him for permission,” Bean said in a television interview with the BBC posted on its Web site yesterday. “We would expect him to let us do a reasonable amount more but ultimately that will be something for the governor to discuss with the chancellor when the time comes.”

The U.K. central bank said last week it will wait until August to decide whether to expand the program from its current total of 125 billion pounds as policy makers fight the threat of deflation. Data yesterday showed inflation slowed below the bank’s 2 percent target for the first time since 2007, and officials predict it will weaken further.

With the bank due to review its economic forecasts next month, August “is a natural point for us to take stock, decide whether we feel we need to do more or whether it would be a good time to pause for a little bit,” Bean said. Former policy maker David Blanchflower wrote in the Guardian today that the bank should have expanded the program last week.

Bean dismissed concerns about inflation, which slowed to 1.8 percent in June from 2.2 percent in May. Price gains have weakened after the economy contracted by the most in a half- century in the first quarter.

Inflation Risk

“We’re not going to get inflation without having had a recovery first,” he told the BBC. “We’ll get inflation if we pump too much extra money into the economy and then we don’t withdraw it fast enough as the economy picks up.”

Bean also said that the central bank doesn’t expect the inflation rate to drop as low as 1 percent, according to an interview with the Liverpool Daily Post fast cash loans. “We are quite a long way from a deflationary situation,” he was cited as saying.

U.K. unemployment rose the least in a year in June, the statistics office said today, adding to evidence that the worst of the recession may have passed. Jobless benefit claims climbed from May by 23,800 to 1.56 million, the highest level in 12 years, the Office for National Statistics said in London today.

The median forecast of 29 economists in a Bloomberg News survey was 41,300.

The central bank will probably use “a mix of” interest- rate increases and selling the assets it has bought when it decides to reverse its policy, Bean said.

‘Tricky Judgment’

Speaking to the Scotsman newspaper, Bean said that the government shouldn’t have “too much of a problem selling its debt” when the central bank stops buying it, the paper reported.

In a separate interview published in today’s Herald newspaper, he said that the bank faces a “tricky judgment” about when to withdraw the stimulus in the economy. The Bank of England won’t want to leave it too late or do it too soon, he said, according to the newspaper.

The bank’s asset purchases will help sustain a recovery in the “back end” of 2009 and in 2010, Bean told the Herald. Banks are still obviously in a “fragile state,” the newspaper cited him as saying.

The Manchester Evening News reported Bean as saying that the bank expects economic growth to pick up in the second half of this year and that it should be “better established” in 2010, according to another interview published today.

The next interest-rate decision is on Aug. 6.

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