01/08/12

Commenting ahead of the MPC decision tomorrow (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.

"The 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.

“Growth in the economy can best be supported by encouraging lending to credit-worthy businesses with the potential to expand. If the MPC agrees to purchase assets other than gilts, notably securitised SME loans, banks would be less risk averse in lending to businesses.

“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. The creation of a business bank could make a major contribution in removing the obstacles limiting legitimate business lending on reasonable terms.”

Ends

Notes to editors:

The British Chambers of Commerce (BCC) is the national voice of local business.

The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce, serving over 100,000 businesses across the UK, which employ over five million people. For more information visit: www.britishchambers.org.uk

Media contacts

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Lisa Morrison
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M: +44 [0]7717682221
l.morrison@britishchambers.org.uk