Qe Uncertainties Remain Unresolved
24 May 2012 in Chamber News
Higher QE still unnecessary; MPC should look to buy private sector assets and consider negative rates on deposits held by banks
Commenting on the Monetary Policy Committee (MPC) minutes for May, published today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:“The unanimous decision to hold rates at 0.5% was no surprise, and the decision to hold Quantitative Easing (QE) at £325bn was taken with an 8-1 majority. Interestingly, Adam Posen voted with the majority, although subsequently he has spoken publicly about the potential need for a further increase in the asset purchase programme.
“The worsening eurozone crisis has heightened the risks facing the UK, and if the financial system comes under pressure an increase in QE may still be needed. But for the time being, it is more important for the MPC to make better use of the existing liquidity that has been created by the QE programme.
“With growth now the key concern in the UK and Europe, the Bank of England must make a greater effort to help increase the flow of lending to credit worthy businesses. The MPC should reconsider its reluctance to purchase private sector assets rather than focusing exclusively on gilts. It should also consider imposing a negative interest rate on deposits held by banks in the Bank of England in order to discourage hoarding and provide an incentive to lend.”