BCC: Increasing QE is not risk-free and may not help real economy
04 Jul 2012
Commenting ahead of the Monetary Policy Committee (MPC) decision tomorrow (Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“Given the difficult economic circumstances, both in the UK and across the world, many expect the MPC to announce a £50bn increase in Quantitative Easing (QE). The argument for more QE has been strengthened by the effect of the eurozone crisis on the UK financial system, with the resulting increase in higher funding costs for UK banks harming both businesses and consumers.
“While an increase in QE may have some benefits, the effect will be marginal. Increasing QE is not risk-free, and could be counter-productive. 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.
“There are other ways to tackle the challenges faced by the UK economy – for example if the government and Bank of England are able to implement the two recently announced lending and liquidity schemes quickly, and forcefully. To support 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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