Osborne says would allow Bank to do more easing

(Reuters) - The government will sanction more money being pumped into the economy if the Bank of England judges that more monetary stimulus is needed, Chancellor George Osborne said on Friday.

His comments are yet another sign the coalition government expects monetary policy to shoulder the burden if the economy starts slowing rapidly in response to planned spending cuts.

After cutting interest rates to a record low of 0.5 percent, the BoE started buying assets, mostly government bonds, with newly created money -- quantitative easing -- in March 2009 during the worst recession since World War 2.

The central bank then put quantitative easing on hold in February, after injecting 200 billion pounds into the economy. Most analysts still expect policy to stay on hold well into next year, after which they see interest rates rising -- one Monetary Policy Committee member has been calling for a hike since June as inflation remains stubbornly well above target.

But expectations of more easing have gone up after the U.S. Federal Reserve signalled it too stood ready to start more QE and Adam Posen, another MPC member, suggested he would vote for an expansion of the asset-buying programme at the Oct 8 policy meeting.

Osborne, who later this month is expected to announce the biggest spending cuts in a generation, made clear he would not stand in the Bank's way if it thought the economy needed more support.

"Obviously if the MPC asked there would be an exchange of letters," he said at a news conference on the sidelines of the International Monetary Fund/World Bank meetings in Washington.

"I regard the MPC as independent. If it makes judgements then I would want to basically follow those judgements."

Under the current framework, the BoE would have to ask the Treasury for permission to pump more money into the economy.