The Bank of England’s monetary policy committee (MPC) is expected to extend its programme of quantitative easing (QE) by £25 billion, though there are doubts whether it will take action beyond that.

The Bank has so far committed £125 billion of QE in an attempt to boost the money supply, mainly through purchases in the markets of gilts and other assets. It has permission from the Treasury for a further £25 billion of such purchases, which analysts expect to be announced this week. Beyond this, it would have to seek new approval from the Treasury, which indemnifies the Bank against losses on the scheme.

The shadow MPC, a group of independent economists that meets under the auspices of the Institute of Economic Affairs (IEA), today calls on the Bank to maintain the base rate at 0.5% and extend QE beyond the £150 billion it currently has permission to undertake.

“There was a widespread feeling among the members of the IEA’s shadow committee that QE was the only effective monetary policy instrument presently available to the authorities,” it said. “Several committee members believed that the present schedule of gilt purchases should be extended. Some members thought that an additional £100 billion to £150 billion of debt repurchases was required once the current package had run its course.”

Economists continue to debate whether QE is working, with bank lending still subdued. The policy has become of central importance to the gilt market. Traders fear that gilts — UK government bonds — will fall sharply once the Bank calls a halt to the programme.

The Bank will discuss if it should extend QE next month, when it has the benefit of a new forecast for its August inflation report. It will weigh signs that the economy has stabilised against other evidence suggesting a sustained recovery is some way off.

A report to be published this week is set to show that the pace of the job market’s decline is slowing. The KPMG/REC Report on Jobs, produced by the accountancy firm in conjunction with the Recruitment and Employment Confederation, will suggest that the pace of decline in permanent and temporary staff appointments has eased — a picture consistent with recent official data showing a smaller monthly increase in unemployment following record rises in the winter.

This also chimes with the purchasing managers’ indices, particularly for the service and manufacturing sector, which continued their improving trend last month.

However, official figures last week showed that “money GDP” — gross domestic product in nominal terms — was 4% lower in the first quarter compared with a year earlier. The Bank has said that one of the aims of QE is to get money GDP growing by 5% a year, in line with trend growth in the economy and the inflation target.

Analysts see little prospect of a change in interest rates from the Bank until well into next year. A survey by Ideaglobal.com, the financial research consultancy, suggests that the Bank will not begin “normalising” rates — raising them — until the third quarter of 2010.

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