Business and Finance

Bank of England Deputy Governor Charles Bean said rising asset prices and improved confidence may be signs the central bank’s bond purchases are working.

“It seems that activity here and elsewhere has probably troughed, so some of the worst downside risks look unlikely to crystallize,” Bean said in a speech in London today. “The rise in asset prices and the recovery in confidence since the start of the quantitative easing program have been significant.”

The Bank of England last week pledged to stick to its plan to buy 175 billion pounds ($277 billion) of bonds to cement Britain’s recovery from the worst recession in a generation. Policy makers have signaled they will reevaluate their program in November, when they produce new forecasts for economic growth and inflation.

Bean said the difference between U.K. government bond yields and overnight-indexed swap rates of the same maturity has fallen by about 0.75 percentage point since the asset purchases started in March.

Since that effect hasn’t been seen in the U pay day loan lenders.S. or the euro area, it “strongly suggests that the movement may be related to our gilt purchases,” Bean said.

He also cited rising stock prices, and the fact that U.K. companies have issued more than 60 billion pounds worth of bonds and equities since January.

The central bank won’t hold all its purchases to their maturity, Bean said.

“At some stage, as the recovery proceeds, the Monetary Policy Committee will need gradually to remove the large monetary stimulus that we have imparted to the economy, otherwise we will be in danger of overshooting our 2 percent inflation target,” Bean said.

“The process of selling off the gilts can then be expected to push gilt yields back up towards where they would have been in the absence of the quantitative easing program,” he said.

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