Higher QE will provide marginal benefits only to the real UK economy

Commenting on today’s Monetary Policy Committee (MPC) decision, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“The £50bn increase in Quantitative Easing (QE) announced by the MPC may have only marginal benefits to the real economy. Arguments for increasing QE have been strengthened by the threat posed by the eurozone crisis to the UK’s financial system, but there are other policies that could help boost economic growth.

"While the increase in QE may produce some modest benefits, the policy is not risk-free, and could be counter-productive. It may limit the decline in inflation in the long term. It may limit the decline in inflation in the long term, at a time when we need falling inflation to underpin real incomes and boost demand in the UK economy. QE was the right response in earlier years, but at the present time its benefits for the real economy are at best likely to be marginal.

"There are better and more effective ways to tackle the challenges faced by the UK financial system and the real economy. For example, we believe the government and Bank of England should implement the lending and liquidity schemes recently announced at the Mansion House swiftly. To boost lending to businesses, the MPC must agree to purchase private sector assets, and the government must initiate moves towards the creation of a business bank.

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