29/07/12

Commenting on the choices facing the Monetary Policy Committee (MPC) at its July 2012 meeting next Thursday, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“Most commentators expect the MPC to maintain interest rates at 0.5% and the Quantitative Easing (QE) programme at £375bn. Following the decision to raise QE from £325bn to £375bn, the MPC will look to implement the increased asset purchases before considering any further changes.

“This week’s disappointing GDP figure may increase calls for more QE later in the year. While difficulties in the eurozone may have been justification for an increase, any further increases would be unwise. Higher QE will only have marginal effects on the real economy, and is not risk-free, as it will limit the fall in inflation. Lower inflation is critical to underpinning real incomes and sustaining demand in the UK economy.

"The MPC should do more to support increased lending to the real economy. That means swift implementation of the Funding for Lending scheme. The MPC should also reconsider its reluctance to purchase assets other than gilts, notably securitised SME loans. Such a move would make the banks less risk averse towards small- and medium-sized businesses, thus helping to remove one of the main obstacles to a sustainable UK recovery. In addition, the MPC could also consider introducing a reduction in the rate paid by the Bank of England on deposits held by commercial banks. This could discourage hoarding and may provide a useful incentive to increase lending.

Ends

Notes to editors:

The British Chambers of Commerce (BCC) sits at the heart of a powerful nationwide network of 51 Accredited Chambers of Commerce, serving over 104,000 businesses across the UK, which employ over five million people. For more information visit: www.britishchambers.org.uk

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