MPC made the right decision, but should help boost business lending

2nd August 2013

Commenting on today's Monetary Policy Committee (MPC) interest rate decision, the second under the new Governor Mark Carney, David Kern, Chief Economist at the British Chambers of Commerce (BCC) said: -The MPC made the right decision to hold interest rates and quantitative easing.

Quarterly growth has been confirmed at 0.6% for the second quarter, the manufacturing PMI figure for July was strong, and there are signs that the eurozone economy is beginning to stabilise. This increases the likelihood that the UK economy will continue to grow at a moderate pace in the third quarter. Minutes from the recent MPC meeting suggest that QE is unlikely to be increased any time soon and low interest rates will be maintained for a long period, which will provide a stable environment for businesses.  -This is a positive shift in emphasis and we hope this will be confirmed when the MPC presents its response to the Chancellor on how forward guidance should be used, expected next week. When looking at the tradeoff between growth and inflation, we hope the Committee accepts that under current circumstances, more inflation is likely to damage growth. We continue to urge the MPC to consider new policy measures to help boost business lending. For example, the existing QE programme could be used to purchase private sector assets other than gilts, including securitized SME loans, as this would reduce the risk when banks are looking to lend to business.