(Adds retail sales, details)
By Jonathan Cable
LONDON, May 28 (Reuters) - The Bank of England is expected to spend the full 150 billion pounds permitted by the government on asset purchases and the plan will prove successful in resuscitating the economy, a Reuters poll found.
With interest rates already at a nadir, the focus has switched to how much the central bank will try and boost an embattled economy by way of its quantitative easing programme, which expands the money supply, and how effective it will be.
The poll of around 60 economists, taken May 26-28, found all of them saying the bank would leave rates unchanged when it meets next week.
Median forecasts showed the bank would eventually spend 150 billion pounds on the programme, the same as in a poll a month ago, and 50 of 57 said the plan would ultimately be effective or very effective.
Only seven said the plan would be ineffective and none said it would be very ineffective.
"Somehow the magic seems to be functioning, gilt yields have gone up, equities have gone up, credit spreads have come in -- exactly as you would hope," said Michael Saunders at Citi.
The aim of the BoE's programme was initially to bring longer-term borrowing costs -- or yields - down, but they are also beginning to rise on expectations a recovery may materialise, along with the avalanche of debt supply on the way.
Even with the UK due to issue billions more in bonds to cover the cost of spending its way out of recession, yields on 10-year gilts are now just 20 to 25 basis points above where they were before the bank unveiled its plans in March. The FTSE leading stock index <.FTSE> has climbed over 25 percent.
Economists were more divided over the success of the plan so far, with 15 of 48 saying it was ineffective. However, 32 said it had been effective and one very effective.
The BoE announced a 50 billion pounds top up to its programme of asset purchases earlier this month, taking its current fund up to 125 billion pounds, and forecasts in the poll ranged for a total spend between 125 billion to 350 billion pounds.
RATES ON HOLD
The bank has been fighting to revitalise an economy that has spiralled into a deep recession, shrinking at a staggering 1.9 percent in the first quarter of this year, its sharpest rate in 30 years, although analysts say the worst is now past. [ECILT/GB]
However, British retail sales fell more than expected in May and retailers believe a further deterioration is likely next month, a survey by the Confederation of British Industry showed earlier on Thursday. [ID:nLS972366]
The BoE had been prevented from cutting rates as inflation was running at 5.2 percent in September but has slashed them mercilessly since October, and the median forecast of over 60 economists is that the bank will leave them at just 0.5 percent until June next year at the earliest.
This is in line with a poll taken earlier this month.
Inflation was 2.3 percent in April -- still above the bank's 2 percent target -- but policymakers expect further sharp declines as the economy is on track to shrink by 4 percent this year, its fastest since World War Two.
"We do not see the MPC raising rates again until it is clear that the recession is over and a sustainable recovery is underway - which we do not expect to be evident until the middle of 2010," said John Hawksworth at PricewaterhouseCoopers.
The central bank is also uncertain about the future prospects for the economy, indicating that growth could restart around the turn of the year but cautioning there could be more weakness to come if banks don't increase lending.
Data released on Wednesday showed the number of UK home
loans agreed in April fell at its slowest annual rate in almost
two years, in a sign that the housing market, the bedrock of
consumer wealth, may be stabilising after a very steep slide.
(For poll data click on
(Polling by Bangalore Polling Unit; Editing by Andy Bruce)