MPC must support revival in business lending

7th November 2012

BCC welcomes shift of opinion against more QE Commenting ahead of the MPC's decision on interest rates tomorrow (Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: -The MPC is unlikely to make any changes this month, and hold interest rates at 0.

5% and the Quantitative Easing (QE) programme at £375bn. In recent weeks, there has been a change in outlook, and earlier expectations that QE would increase now seem unlikely. We welcome this shift in opinion, as we believe that adding to QE would be misguided. -Increasing QE would only provide marginal benefits for the real economy, while increasing longer-term risks of financial distortions, bubbles and higher inflation. Inflation is set to increase next month, and will probably fall less than initially thought in 2013. This supports arguments against using QE to limit declines in inflation. A fall in inflation would be beneficial, even if the rate moves temporarily below the 2% target. This would underpin real incomes and support demand at a time when growth prospects remain weak. -To boost growth, the MPC and the government should take steps to support a revival in business lending, by using the existing QE programme more efficiently and by considering 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.