More QE is not the answer. Government must consider creating a business bank to increase lending to businesses
Commenting ahead of the MPC decision tomorrow (Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“It is widely expected that there will be no change at the May meeting of the Monetary Policy Committee (MPC), with interest rates held at 0.5% and Quantitative Easing (QE) at £325bn. However, increasing uncertainty in the eurozone following the Greek and French elections, have accentuated sterling’s rises against the euro, complicating the MPC’s task. Recent rises in mortgage interest rates due to higher bank funding costs point to blockages in the financial system, and this combined with a strong pound may reignite demands for more QE.“However, we think the MPC should maintain QE at current levels. Further increases in QE are unnecessary at the present time since it has not led to a meaningful rise in lending to small and medium-sized firms.
“With recent data showing that lending to non-financial UK businesses fell again in March, the government must consider the creation of a business bank. More QE is not the answer. In addition, the MPC must focus on boosting the flow of credit to viable businesses, by purchasing private sector assets.”