Commenting on the choices facing the Monetary Policy Committee (MPC) at its October 2012 meeting next 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, in reaction to weaker global growth and worsening problems in the eurozone, we expect a further £50bn increase in QE before the end of the year, probably in November. Such a move would be understandable in view of the expansionary policies being pursued by other major central banks, notably the US Fed and the European Central Bank.

“But we urge the MPC to be very cautious. Adding to QE could be misguided and counter-productive at the current time and should only be considered if eurozone problems pose new threats to the UK banking system. With yields on gilts at very low levels already, more QE would only provide marginal benefits for the real economy, while increasing the longer-term risk of financial distortions, bubbles and higher inflation. 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 very weak.

“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 effectively, and by employing 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 used more effectively, and the government’s promise to establish a fully-fledged British Business Bank must be implemented without delay.”


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

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