By Maximilian Clarke
At noon today the Bank of England’s Monetary Policy Committee will again announce their fiscal policies for then next month.
It is widely anticipated that the Committee will maintain their record low interest rates for the remainder of 2011 due to the world’s worsening economic performance.
Increased quantitative easing- the Bank’s purchase of debts akin to a cash injection into the economy intended to stimulate lending- has until now been avoided due to its potentially inflationary side effects, at a time of continued high inflation.
But business organisations, including the British Chambers of Commerce, and the Institute of Directors are urging the Bank to increase its asset purchase programme as a necessary evil at a time of deepening crisis.
"Economic prospects have worsened both globally and in the UK,” said David Kern, Chief Economist at the British Chambers of Commerce. “While the government must continue to implement its tough deficit-cutting programme aimed at stabilising our public finances, every effort must be made to reduce risks of a setback. We expect the Committee to increase the QE programme from £200 billion to £250 billion. While increasing QE will be beneficial, this alone is not sufficient, and we urge the MPC to look at other radical methods.”
“The Chancellor’s intention to use credit easing methods to help stimulate the flow of credit in the economy is a welcome initiative, but its implementation could take time. Since the MPC can move more quickly, there is a strong case for it to help boost bank lending to businesses by immediately raising its purchases of private sector assets. It should also impose negative interest rates on deposits held by commercial banks at the Bank of England, which would help to boost the availability of credit. Furthermore, by confirming that interest rates will not be raised until the end of 2012, as the Fed has done in the US, the MPC can help to underpin business confidence.”
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