Bank of England urged to expand quantitative easing

 

The Bank of England was today urged not to waste time in issuing
another dose of emergency medicine to help the ailing British economy.

The British Chambers of Commerce (BCC) said an announcement this week on an expansion of the Bank's quantitative easing (QE) programme would boost confidence and ease concerns around the fate of the eurozone.

Despite the BCC's message, most analysts expect the Bank's Monetary Policy Committee (MPC) to keep QE at £275 billion following Thursday's meeting, with next month seen as the more likely date for action.

Calling for an immediate £50 billion boost to the QE programme, David Kern, chief economist at the BCC, said: "The economic challenges facing the UK, and unresolved problems in the eurozone, highlight the importance of sustaining confidence within the business community.

"As the Government perseveres with its plan to reduce the deficit, it must make efforts to help the economy continue to grow."

Recent economic data has shown a higher-than-expected lift in economic growth in December, which may have surprised the MPC.

Growth in the powerhouse services sector, which makes up 75% of the UK economy, is likely to have saved the wider economy from contraction in the final quarter, while surveys reported growth in manufacturing and construction.

However, the crisis in the eurozone - which the Bank cited as one of the key threats to the UK recovery - continues to rumble on as EU leaders are yet to deliver a concrete plan to resolve the region's problems.

The minutes from the MPC's last meeting in December suggested a further cash injection to boost the economy was highly probable but not until at least February, as the committee completes the current round of QE announced in October.

Holding interest rates at 0.5% will be welcomed by borrowers, but the extended period of lower lending costs spells more misery for pensioners and savers, who will continue to suffer low returns on their money at a time when inflation is eroding the value of their deposits.

Victoria Cadman, an economist at Investec Securities, said the balance of risks still points to the UK economy re-entering recession in the first half of this year.

She said: "By February these fears, coupled with the continuing severe threat posed by the euro crisis alongside signs of inflation trending down, we think, will push the MPC into sanctioning further QE."

PA

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