We need a revival in business lending, BCC urges MPC

5th September 2012

Commenting ahead of the MPC decision tomorrow (Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:  -We expect the MPC to make no changes this month, holding interest rates at 0.

5% and the Quantitative Easing (QE) programme at £375bn. But a further increase in QE is likely in the coming months, in response to slow global growth and the prospect of shrinking UK GDP in 2012. However, we believe that adding to QE could be counter-productive. -QE played a valuable role in the early stages of the financial crisis in 2009. But, 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. An increase in QE should not be used to prevent inflation from falling below the 2% target in 2013. A temporary fall in inflation would be beneficial, as it would underpin real incomes and support demand at a time when UK growth prospects remain weak. More QE should only be considered if problems in the eurozone pose new threats to the UK banking system, -To boost growth, there must be a revival in business lending. The MPC and the government have to play their part by using the existing QE programme more effectively, and by exploring measures other than QE on its own. If the MPC agrees to purchase private assets other than gilts, such as securitised SME loans, our commercial banks would be less risk-averse in lending to businesses. And the UK's growth prospects would improve dramatically if the government was to act quickly on the support shown by the Chancellor at the weekend for the creation of a fully-fledged British Business Bank.

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