MPC must prioritise business lending

6th September 2013

Commenting on the MPC decision, announced today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:   -The MPC was right to keep interest rates and QE on hold.

Recent strong data has increased the likelihood that GDP will continue growing at a relatively fast pace in the third quarter. This will also strengthen expectations that interest rates will start to increase before Q3 2016, the earliest date forecast by the MPC.   -While Governor Carney is keen to reinforce the Bank's forward guidance, increasing interest rates earlier than the MPC expected shouldn't be a concern if the recovery continues to gather pace. Although the forward guidance boosts business confidence, it is only effective if the MPC remains committed to the inflation target, and does not increase QE. Any increase in QE at a time when the US considers withdrawing its stimulus could lead to a sharp fall in sterling and higher inflation, providing little benefit to exporters. Instead, we urge the MPC to consider policy measures aimed at boosting business lending. This means purchasing more private sector assets including securitized SME loans rather than just gilts.