• MPC must increase effectiveness of existing QE
• Lending to businesses must be improved
Commenting on today’s Monetary Policy Committee (MPC) decision, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:“Following last month’s increase in QE, the decision to keep interest rates on hold at 0.5% and the Quantitative Easing (QE) programme at £325bn was widely expected. Given the MPC’s self-imposed practice of only purchasing gilts, this decision was correct.
“We supported the MPC’s decision to increase QE as it helps to underpin financial stability. However, we are concerned that it has not led to meaningful increases in lending to firms, and the benefits to the real economy have been limited. The rise in mortgage rates seen recently is a further obstacle, and reinforces our view that action must be taken to supplement QE.
“We urge the Chancellor to ensure that the planned credit easing programme is carefully considered so it makes a real difference to businesses on the ground. But the MPC also has a part to play, and must accept that simply adding to QE is unlikely to make a significant difference. The Committee must concentrate on how to increase the effectiveness of the existing QE. To achieve this, it should consider including assets other than gilts in the QE programme, such as securitised SME loans. The key aim must be to make banks less risk averse, and to help stimulate the flow of lending to businesses.”