Mpc Must Act To Increase Lending To Businesses
10 May 2012 in Chamber News
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 QE, and hold interest rates at 0.5% was the right one. In recent days we have seen renewed demand for an increase in Quantitative Easing (QE) as a result of more uncertainty in the eurozone. However, the recent increases in QE have not led to more lending to businesses, with limited benefits to the real economy. “The growing uncertainty in the eurozone, following the Greek and French elections and the bail out of Bankia in Spain, has complicated the MPC’s job. As the pound continues to grow in value against the euro, while the austerity plan dampens domestic demand, the competitiveness of UK exports has been impaired. Recent increases in mortgage interest rates due to high bank funding costs could also reinforce the clamour for more QE later in the year. But the minutes following April’s meeting showed a shift of opinion in the committee against adding to QE.
“The Monetary Policy Committee must look to make better use of the existing levels of Quantitative Easing, and to make sure viable businesses are able to access the finance they need. The government must consider the creation of a business bank, which would address the problems faced by firms trying to get credit. The MPC can help to address the problems with lending to businesses by agreeing to purchase private sector assets rather than focusing exclusively on purchasing gilts as it does at present. Such a move will make the banks less risk averse and will help to improve the flow of lending to credit worthy firms.”