MPC was right not to increase QE

10th January 2013

Commenting on today's Monetary Policy Committee (MPC) decision, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: -The MPC's decision to maintain QE at £375bn and hold interest rates at 0.

5% was widely expected and in our view, correct. Our members do not support some of the current gloom about the economy, despite of the possibility that GDP growth will slow sharply in Q4 2012. Given these circumstances, we believe that pressures for more QE should be resisted. -Adding to QE should only be considered if new threats emerge to the stability of the UK banking system. We believe that further QE would provide only marginal benefits for the real economy, while heightening longer-term risks of financial distortions, bubbles and higher inflation. -Instead, the MPC should use the existing QE programme more effectively to support a revival in business lending. If the MPC agreed to use QE to purchase private assets other than gilts, such as securitised SME loans, banks would be less risk-averse in lending to businesses. Greater efforts must also be made to ensure that the Funding for Lending scheme operates more effectively. On its part, the government must move more resolutely to establish a fully-fledged British Business Bank.