Bank of England ready to buy more bonds if needed to help limit coronavirus impact

By David Milliken and Andy Bruce

LONDON (Reuters) - The Bank of England held off from taking fresh action to stop the coronavirus crisis from plunging Britain's economy into a long recession on Thursday, but said it was ready to ramp up its bond-buying programme further if needed.

The BoE said that while it was not yet able to assess the likely scale of the hit, many firms were already describing it as worse than during the 2008 financial crisis.

The central bank, which carried out two emergency rate cuts earlier this month, kept its key interest rate at a record-low 0.1% and the size of its recently expanded bond purchase programme at 645 billion pounds.

"If needed, the MPC can expand asset purchases further," the BoE said, adding it would "guard against an unwarranted tightening in financial conditions," a nod to last week's rise in British borrowing costs as investors rushed to buy dollars.

The bank has worked closely with the government which was due later on Thursday to expand on its historic decision for the British state to help pay workers' salaries by including self-employed workers.

"We think there is a good chance the BoE will end up doing more QE (bond-buying) by May, although this will depend on an assessment of the longevity of the shock nearer to the time - and the likely fiscal consequences," JP Morgan economist Allan Monks said.

Monks said the government's budget deficit could balloon to 9% of GDP during the next financial year - almost as large as in the financial crisis - and the Resolution Foundation think tank said the BoE might need to step in and buy bonds directly.

"It is crucial that we plan for what happens if the situation deteriorates and the government is unable to borrow direct from markets to fund measures on the scale required to support the economy," former BoE officials James Smith and Tony Yates wrote.

BoE Governor Andrew Bailey said last week that central banks historically had a strong aversion to buying debt directly from governments lest it lead to uncontrolled spending and inflation.

"The government and the Bank of England should be explicit in advance that it will only take such measures if they are temporary, transparent and accountable," Smith and Yates wrote.

The BoE said that even before Britain closed most non-essential businesses on Monday, clothing stores reported "high double-digit falls in sales," consultants said clients were delaying projects and banks restricted credit to new borrowers.

"The scale and duration of the shock to economic activity, while highly uncertain, will be large and sharp but should ultimately prove temporary, particularly if job losses and business failures can be minimised," the BoE said.

(Writing by William Schomberg and David Milliken; Editing by Hugh Lawson)