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Bank urged to inject more cash into economy. Pearson May News Update - Friday 13 January
Pearson May news blog
Bank urged to inject more cash into economy
The Bank of England should be bold and increase the Quantitative Easing (QE) programme by a further £50 billion, the British Chambers of Commerce (BCC) has claimed.
The call comes after the Bank's Monetary Policy Committee voted for no change in fiscal policy this week, keeping interest rates at their record low of 0.5 per cent, and QE at £275 billion.
QE was last increased by £75 billion in October, but the Bank should be more generous with the available QE allowance in order to avoid a setback and to boost growth, says David Kern, chief economist at the BCC.
"Since the challenges facing the UK economy will increase in the first quarter of 2012, a further £50bn increase in QE to £325bn would be welcomed by hard-pressed businesses. An immediate increase in QE would strengthen confidence and help to contain sterling rises against the euro, at a time when we must maintain the competitiveness of our exports. Sterling has risen by some six per cent against the euro in the last three months and this puts unwelcome pressure on British exporters," Mr Kern said.
Any increase should be coupled with effective credit easing measures, he adds: "But QE will only achieve its full potential to support growth if it is supplemented by effective measures aimed at improving the flow of credit to viable businesses. The government must swiftly implement its promised credit easing measures, and the Bank of England should play its full part in supporting such an initiative."
But economists believe that markets may not be able to digest more QE at this stage, particularly because the last round is not due to finish until February. Howard Archer, chief economist at Global Insight said:
"There is belief within the MPC that the markets may have difficulty digesting extra QE at this stage. Holding back on more QE also gives the MPC more time to judge whether underlying inflationary pressures are easing, which some committee members believe is important for the Bank of England's credibility before it goes further down the QE road."
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