Bank of England expands asset purchases

LONDON (Reuters) -- The Bank of England expanded its quantitative easing program by £25 billion, or $41 billion, to £200 billion on Thursday, continuing its unprecedented scheme to revive Britain's recession-hit economy.

Sterling shot up around a cent against the dollar and government bonds tumbled as many investors had expected a bigger expansion of the eight-month-old program to buy assets, mostly U.K. government bonds, with newly-created money.

The BoE, which also left interest rates unchanged at a record low of 0.5% as expected, said the bond-buying would take another three months to complete and analysts said that would probably mark the end of the program.

"We suspect that this will be the final extension to the QE (quantitative easing) program unless the economy suffers a major relapse in 2010," said Howard Archer, economist at IHS Global Insight.

While the BoE noted that numerous surveys had indicated that a pick-up in the economy was in sight, it still believed the prospect was for "a slow recovery in the level of economic activity".

"That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling," the BoE said in a statement.

Two-thirds of analysts polled by Reuters had predicted the central bank would expand its asset-buying scheme, but opinion had been split evenly on whether the increase would be £25 billion or £50 billion.

"The Bank seems to be weaning the market off QE and we strongly suspect that -- barring any further negative surprises to economic growth -- this will be the last installment of the program," said George Buckley, economist at Deutsche Bank.

Britain's economy remained mired in recession in the third quarter. The United States, Germany and France have already started growing again.

The European Central Bank will make its own interest rate decision at 7:45 a.m. ET and on Wednesday the U.S. Federal Reserve signaled that it would keep interest rates at near zero for some time to come.