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UPDATE 2-BoE's Bean-monitoring whether more QE needed

Published 07/13/2009, 01:44 PM

* Bean says UK economy has probably hit bottom

* Policymakers monitoring if further stimulus needed

* Gilt futures rally on hopes of QE extension

(Adds quotes from BBC radio interview)

By Fiona Shaikh and Christina Fincher

LONDON, July 13 (Reuters) - Policymakers are watching to see whether they need to do more to boost the economy, although it looks as if the worst of the downturn may be over, Bank of England Deputy Governor Charles Bean said on Monday.

In a raft of interviews at the start of a nationwide tour to explain the central bank's 125 billion pound quantitative easing programme to the public, Bean said withdrawing stimulus too early risked killing off a recovery.

"When we change Bank rate we expect it to take nine months to work through. The quantitative easing effects are likely to take that long or even longer," Bean was quoted as saying on "Thebusinessdesk.com" web site.

"But we are monitoring it to see whether we do more. Things are looking at least as if they are heading in the right direction," he said.

The comments drove gilt futures to a session high, providing comfort to investors that the central bank was not about to start unwinding its purchases after its decision last week not to expand the programme caused ructions on markets.

NO TIME TO UNWIND

The BoE has taken unprecedented measures to help Britain recover from its deepest downturn in decades, slashing rates to close to zero and pumping billions of pounds into the financial system to try to kick-start lending to households and firms.

There has been little evidence yet the measures have helped lending although recent surveys have suggested the economy may be starting to stabilise, raising expectations that months of ultra-loose policy may soon come to an end.

Bean said it looked as though the economy may have hit a trough, but that any recovery was likely to be a long haul and that it could take a while for banks to start lending again.

"We probably have round about hit bottom: the business surveys and our representatives around the country ... all suggest we're round about a trough at the moment," he told BBC Radio Leeds.

Bean was also quoted as saying that when the time came, the central bank could raise rates well before unwinding their asset purchases.

"But we don't want to do it too early and nip the recovery in the bud," he said, according to thebusinessdesk.com web site.

In an interview with the Yorkshire Post, extracts of which were published on the newspaper's web site, Bean said he hoped the economy would be on track for recovery by 2010.

"I would certainly hope that by the time we are into next year it would look as if things are on the mend and obviously our monetary policy measures - quantitative easing and lower Bank rate - are designed to try to speed that return to a normal set of business conditions."

The Yorkshire Post will publish the full interview in its Tuesday edition. (Reporting by Fiona Shaikh and Christina Fincher; editing by Stephen Nisbet)

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