MPC made correct decision, but more needed to boost business lending

10th October 2013

Commenting on the interest rate decision, announced today by the Bank of England's Monetary Policy Committee, David Kern, Chief Economist at the British Chambers of Commerce (BCC) said:  -The decision to maintain the status quo was both unsurprising and correct.

British business backs Mark Carney's approach of combining forward guidance with a firm commitment to lowering inflation, as this has helped create a stable climate where businesses can make decisions. We don't agree with the criticisms that the policy isn't working because the markets expect interest rates to start rising before Q3 2016. Even if rates rise a little earlier, firms will still have a considerable period of time when they can be confident that the policy won't be tightened.   -There is no case for increasing QE at present. Despite the disappointing manufacturing and trade figures this week, the economy is recovering, and adding to QE could risk increasing inflation. While the Bank of England's balance sheet is sufficiently large, there are strong arguments in favour of changing its composition by replacing some of the gilts with private sector assets such as securitized SME loans. This will make such assets less risky and make it easier for the Bank to increase lending.