By Daniel Hunter
The move was welcomed by the British Chambers of Commerce, although they said more could have been done on top of the cash injection.
“British businesses welcome the MPC's decision to increase the Quantitative Easing (QE) programme to £325 billion," David Kern, Chief Economist at the British Chambers of Commerce (BCC), said.
"Although the benefits are not immediately obvious to the business community, quantitative easing plays a key role in strengthening the financial system and stabilising the wider economy. In the face of difficult domestic circumstances and the ongoing crisis in the eurozone, the decision was a sensible one.
"But QE would be more effective for businesses if the MPC included the purchasing of private sector assets in the programme, instead of focusing exclusively on gilts.
"Furthermore, it should be supplemented by other measures to boost growth and improve the flow of credit to businesses as it will not achieve its full potential on its own. This means implementing an aggressive deregulatory programme alongside a package of credit-easing measures or an SME bank."
Nawaz Ali, UK Market Analyst for Western Union Business Solutions, said the announcement has helped strengthen the pound in forex trading.
“The Bank of England decided to pump another £50 billion into the U.K. economy through another round of quantitative easing. Although the move was widely expected, the pound appears to be benefiting for the moment with sterling up against a basket of currencies," he said.
“This latest round of QE looks to be at attempt by policymakers to help the British economy steer clear of recession and safeguard the country's coveted AAA credit rating; a downgrade would be a dangerous hit to the UK’s struggling recovery — which is already being threatened by Europe’s debt crisis — and a blow to Chancellor George Osborne in particular.
“British exporters should be particularly pleased with the BoE’s announcement, which seems designed to give the export market a much-needed boost. Easy monetary policy in the UK should help keep British goods comparatively cheaper if the latest round of QE results in a weaker currency over the long-term.
“The added liquidity should also help SME's through easier bank lending; despite all the talk around Project Merlin, SME lending has tightened as a result of the eurozone crisis.”
KPMG Chief Economist, Andrew Smith, said the move shows that the MPC are worried about the economy.
“While expected, today’s announcement underlines how worried the MPC is," he said.
"Not deterred by slightly stronger recent data, the committee is clearly concerned about the underlying weakness of the economy. Output has been broadly flat for eighteen months and remains some 4% below its pre-recession peak. Slack in the economy should see headline inflation plummet later in the year.
“Like most things in life, QE is probably subject to the law of diminishing returns and additional asset purchases may not be as effective as earlier ones. Nevertheless, a further extension of the programme is likely. With more austerity measures, by way of spending cuts, on the way and interest rates already at a low, there are few other options available to support demand.”
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