MPC should consider new measures to boost business lending

6th February 2013

Commenting ahead of the MPC decision tomorrow (Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: -The MPC is unlikely to make any changes this month, but it must be prepared to play its part in stimulating economic growth.

With the arrival of Mark Carney as the next Bank of England Governor later this year, there is now a more open debate on the monetary regime. But the discussion has so far mainly focused on whether we need more QE, or whether we have to tolerate more inflation to help kick-start the economy. -We believe that adding to QE would only marginally benefit the economy, while increasing longer-term risks. While higher inflation can ease the debt burden, persistent above-target price increases in recent years have added to the pressure on businesses and consumers. Allowing higher inflation can be highly dangerous, and is more likely to weaken growth rather than strengthen it. To boost growth, the Bank of England and the government should help to revive business lending, both by using QE more efficiently, and by considering tools other than QE alone. -Since UK banks are still weak, and the regulatory burden on them is likely to increase further, implementing a fully-fledged British Business Bank is clearly the most effective way of securing an increase in lending.

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