More QE would only provide marginal benefits

3rd October 2012

Commenting ahead of the MPC decision tomorrow (Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:  -We expect the MPC to make no changes this month, holding interest rates at 0.

5% and the Quantitative Easing (QE) programme at £375bn. But, in reaction to weaker global growth and worsening problems in the eurozone, we expect a further increase in QE before the end of the year. -QE played a valuable role in the early stages of the financial crisis in 2009. But, with yields on gilts at very low levels already, more QE would only provide marginal benefits for the real economy, while creating longer-term risks of bubbles, financial distortions, and higher inflation. An increase in QE should not be used to prevent inflation from falling below the 2% target in 2013. A temporary fall in inflation would be beneficial, as it would underpin real incomes and support demand at a time when UK growth prospects remain weak. More QE should only be considered if problems in the eurozone pose new threats to the UK banking system, -To boost growth, the MPC and the government should take more effective steps to support a revival in business lending, both by using the existing QE programme more efficiently, and by employing tools other than QE alone. If the MPC agrees to purchase private assets other than gilts, such as securitised SME loans, banks would be less risk-averse in lending to businesses. The Funding for Lending scheme must be used more effectively and the government's promise to establish a fully-fledged British Business Bank must be implemented without undue delay.  

You might also be interested in

Local Businesses List Cleanliness, Safety and Retail As Their Top Priorities For Improvement in South Yorkshire’s Civic Centres

Mon 8th July 2024

Safety, cleanliness and the quality of retail have all been cited by South Yorkshire businesses as top priorities for their local urban cores. This is according to the recently-published findings of the Town and City Centre Survey.

BCC Quarterly Economic Survey: Business Confidence Continues To Tick Up in Q2

Mon 8th July 2024

The BCC’s Quarterly Economic Survey – the UK’s largest and longest-running independent business survey – shows measures of business confidence and business conditions slightly improved in Q2 2024, albeit from a very low base.

Bank Seeks Further Evidence Before Rate Cut

Mon 1st July 2024

David Bharier, Head of Research at the British Chambers of Commerce reacts to the Bank of England’s latest interest rate decision

BCC DIRECTOR GENERAL SHEVAUN HAVILAND: STOP TREADING ON EGGSHELLS AROUND EU TRADE

Mon 1st July 2024

Director General of the BCC, Shevaun Haviland, has urged the next Government to stop treading on eggshells around trade with the EU if it wants to grow the UK economy.