MPC right to hold QE programme at £325bn
Commenting on today’s Monetary Policy Committee (MPC) decision, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“The MPC’s decision to maintain current levels of Quantitative Easing (QE) was the right one. Though the clamour for increasing the asset purchase programme has intensified with the worsening eurozone situation, and signs that the US and Asian economies are slowing, the benefits of additional QE would be marginal at present. However, if conditions in Europe worsen, with more pressure on Spanish banks, and heightened debt problems, then there could be a risk to the UK financial system. In that case, additional QE might be necessary over the next couple of months.
The MPC could also consider introducing a 0% or negative interest rate for deposits held by commercial banks at the Bank of England. This could discourage hoarding, and provide an incentive for banks to increase lending. The Monetary Policy Committee should also focus on helping to boost the flow of credit to businesses, in particular small- and medium-sized firms. That means considering the purchase of assets beyond gilts, for example securitised SME loans. Such a move would make the banks less risk averse lending to businesses, thus helping to remove one of the main obstacles to a sustainable UK recovery.
“We need growth in the economy sooner rather than later, and at the same time protect the UK’s credibility. The government could also address the problem of access to finance by creating a business bank.”