By Maximilian Clarke
The Bank of England’s Monetary Policy Committee recently announced their surprise decision to boost quantitative easing, or bank asset purchases, by £75 billion in order to foment a hastier recovery.
Reacting to the announcement are economists and business organisation representatives...
Prominent business organisation, the Confederation of British Industry, supported the announcement and the likely boost it would give to UK businesses:
“With the risks to the economic outlook increasing, the MPC has acted promptly by extending quantitative easing this month,” commented the Confederation’s Chief Economic Advisor, Ian McCafferty.
“This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest. Only once the turmoil in the Eurozone is resolved will confidence be fully restored.”
Graeme Leach, Chief Economist at the Institute of Directors, has also welcomed the news, hailing it as 'the right decision':
“What did we want? More QE. When did we want it? Now. Near zero GDP and money supply growth made a compelling case and the Bank of England was right to launch QE2. It could be argued that the Bank of England was slow to introduce QE the first time, but thankfully it hasn’t made the same mistake twice.”
The Chief Economist at World First currency brokers, Jeremy Cook says the boost was unavoidable, though came earlier than expected:
“Mervyn and the MPC have got their bazooka out once again and the reasons are simple and obvious; strains in funding markets, slackening global economy and a consumer that is scared of spending money.
“We had expected the Bank of England to hold QE today with the belief that they would wait on measures from the European finance ministers’ meeting in Cannes at the beginning of November, but they have obviously had enough of the deterioration in global finances.
“The fact that they have gone harder and earlier is a sign that the Bank of England are rightfully very concerned as to how the Eurozone will affect the world economy. We just have to hope that our QE2 works better than that of the US.”
Also commenting are the British Chambers of Commerce, who warn that quantitative easing alone will not achieve the desired boost. They argue that the Bank must act now in order to provide the economic stimulus necessary for the UK economy.
“There is a strong case for the MPC to help boost bank lending to businesses by immediately raising its purchases of private sector assets," said the BCC's chief economist, David Kern.
"For QE to be truly effective, it is critical that the additional funds should urgently go into the real economy. The Committee should also impose negative interest rates on deposits held by commercial banks at the Bank of England, which could help to boost the availability of credit.
"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. We appreciate that the MPC must be concerned over above-target inflation, but this is likely to fall next year, while the threats to growth are more serious at the present time.”
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