MPC should concentrate on measures other than QE

19th September 2012

Commenting on the MPC minutes published today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: -The decision to hold interest rates at 0.

5% and to maintain QE at £375bn was taken unanimously, which was unsurprising. Existing QE is still being implemented, so it is understandable that the MPC wants to wait before another increase. However, the minutes reveal that some members think further stimulus will be needed, and the financial markets are expecting a QE increase around November time. -Recent measures by the ECB, the US Fed and the Bank of Japan will probably reinforce pressures for an increase. But we still think the MPC should be cautious and refrain from adding to QE unless the UK financial system faces new threats due to developments in the eurozone. It is important that additional QE is not used to limit falls in inflation over the next year, as a temporary fall below the 2% target would support demand. -Although QE was helpful in the early stages of the 2008/09 financial crisis, its benefits have diminished in recent years, mainly because the scheme has focused exclusively on purchasing gilts. A recovery in business lending will only be achieved if the MPC and the government relies on tools other than conventional QE. The Funding for Lending scheme could be effective, but the MPC could help by purchasing assets other than gilts, including securitised business loans. To ensure credit is reaching new and growing companies, the government should be moving towards the early creation of a state backed business bank.

You might also be interested in

Four in Ten UK Exporters Reporting Decreased Sales in Q1 2021

Tue 13th April 2021

The British Chambers of Commerce’s Trade Confidence Outlook for Q1, released today, has revealed the stark issues facing UK exporters in the first months of this year.

BCC Says Modest Growth in GDP Offers Some Hope for the Future

Tue 13th April 2021

Commenting on GDP figures for February 2021 published today by the ONS, BCC Head of Economics, Suren Thiru, said:

Invest in our people, our planet and our regional business communities

Mon 12th April 2021

Watch back our webinar recording of One Year On: Shaping the national recovery effort event, in partnership with Devon & Plymouth Chamber.

BCC Welcomes Global Travel Framework But Warns Questions Remain

Fri 9th April 2021

Responding to the publication of the Global Travel Taskforce Framework for International Travel, British Chambers of Commerce Director of Policy James Martin said: