The Bank of England said it will increase bond purchases to give the British economy a further push as it shows signs of emerging from the worst recession in a generation. The nine-member Monetary Policy Committee, led by Governor Mervyn King, will add 50 billion pounds ($75 billion) to its program of asset purchases. By the time it meets in August policy makers anticipate having spent a total of 125 billion pounds. The panel also left the key interest rate at a record low of 0.5 percent, the bank said today in London. Prime Minister Gordon Brown’s government has authorized King to print a total of 150 billion pounds to stave off deflation in an economy where gross domestic product dropped the most since 1979 in the first quarter. Lloyds Banking Group Plc said today that “difficult economic conditions” will persist for a year or more, exacerbating the bank’s corporate bad loans. “We’re surprised that they’ve raised the target immediately,” said Philip Shaw, chief economist at Investec Securities in London. “Perhaps the MPC was spooked by very poor indicators, though they recognized that the more forward-looking ones have been better. If it works, the additional stimulus should be better enable the economy to achieve a recovery.” The yield on the 10-year note fell as much as 10 basis points after the announcement to 3.64 percent. The 10-year note yield was six basis points higher on the day at 3.66 percent as of 12:22 p.m. in London. The pound dropped as much as 1 percent after the decision, trading at $1.5078. It was as high as $1.5197 before the decision. Money Supply King’s MPC shifted focus to raising the money supply as lower interest rates lost their potency. Investors have sought guidance on whether it would expand the plan from an initial 75 billion pounds as its effects showed signs of waning. “The process of adjustment in train in the U.K. economy, as private saving rises and banks restructure their balance sheets, combined with weak global demand, will continue to act as a significant drag on economic activity,” the bank said in a statement. Still, stimulus measures “should in due course lead to a recovery in economic growth, bringing inflation back towards the 2 percent target. But the timing and strength of that recovery is highly uncertain.” Unemployment rose to the highest level since Brown’s Labour Party came to power in 1997 in the three months through February. WSP Group Plc, the British engineering company that helped design New York’s Freedom Tower, said yesterday it will cut about 1,000 workers by the end of June to conserve cash. ‘Surprise’ Decision Today’s decision “is a surprise,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London and a former central bank official. “It’s got to reflect the latest forecasts” due on May 13. “They are probably much more downbeat about the outlook for the economy.” The recession has hurt Brown’s prospects. Just 12 percent of adults expect Labour to win the next national election, a poll published on April 30 by Web site PoliticsHome showed. The worst may still be over for the economy, suggesting a case for the central bank to avoid printing its full allocation of money. U.K. manufacturing contracted at the slowest pace in eight months in April and an index of services industries jumped the most since 1999, surveys by Markit show. The unchanged rate was predicted by 60 of 61 economists surveyed by Bloomberg News. It’s still higher than the Federal Reserve’s benchmark, which is in a range of zero to 0.25 percent, and the Bank of Japan’s rate of 0.1 percent. The European Central Bank will cut its key rate by a quarter-point to 1 percent at 1:45 p.m. in Frankfurt, the median forecast of 53 economists in a Bloomberg News survey shows. President Jean-Claude Trichet may say the bank will start using non-conventional tools at a press conference 45 minutes later.

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