Business groups back May monetary policy decisions

Monday 13 May 2013

Leading business groups have backed the Bank of England's decision to continue with current monetary policy for another month.

Following its May 2013 meeting in London, the Monetary Policy Committee (MPC) decided to keep interest rates on hold at 0.5 per cent and also maintain quantitative easing (QE) at £375 billion.

The decisions were largely expected, as David Kern, chief economist at the British Chambers of Commerce, pointed out.

He said that following the return to positive gross domestic product (GDP) growth in Q1 2013, pressures for an increase in QE have eased.

"We still firmly believe that adding to QE would only provide marginal benefits for the economy, while increasing the risks of higher inflation and bubbles in the future," Mr Kern noted.

He added that, in light of changes to the MPC’s remit announced in the Budget, it is worrying that the demand for more QE could be part of a wider policy shift where higher inflation and a weaker pound are tolerable.

"Instead, incoming Governor Mark Carney should make better use of the existing QE programme, and use measures other than QE alone to support a revival of business lending," Mr Kern urged.

Stephen Gifford, director of economics at the Confederation of British Industry, agreed that the Bank's MPC had made the right decision.

Given that first quarter GDP came in above the Bank’s forecast, we expected the MPC to keep the policy stance unchanged this month," he stated.

"Recent survey data also suggest that modest growth has continued into the second quarter. At the same time, credit conditions should improve further this year on the back of the extension of the Funding for Lending Scheme."

Mr Gifford said that, barring any nasty surprises, the MPC is likely to remain on hold until Governor Carney’s arrival in July.

"More policy certainty may then be established, potentially supporting business and household confidence," he added.

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Posted by Steve Williams