MPC should not increase QE in November, says BCC

17th October 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: "As expected, the decision to maintain QE at £375bn and hold interest rates at 0.

5% was taken unanimously. But the existing QE programme will be fully implemented before the next meeting, and most commentators expect a further increase to be announced in November. Although domestic stagnation and the global slowdown have lead some to call for further QE, we believe an increase at present would be risky. "The minutes show a wide range of views, but we hope that the MPC opts not to expand the programme further. The strong job figures, and the prospect that inflation may increase next month, strengthen the arguments against an early increase. With yields on gilts at very low levels already, more QE would only provide marginal benefits for the real economy, while creating longer-term risks of bubbles, financial distortions, and higher inflation. "To boost growth, the MPC and the government should do more to support a revival in business lending, both by using the existing QE programme more efficiently, and by using 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. The Funding for Lending scheme must be implemented more effectively, and the government's promise to establish a fully-fledged British Business Bank must become a reality on the ground.