Business leaders in the region have expressed their disappointment that the Bank of England’s quantitative easing programme has come to a halt.
The decision was announced by the Monetary Policy Committee as interest rates remained at 0.5 per cent.
The Bank has so far pumped £200 billion in newly-created money into the economy after finishing its latest round of assistance last week. Some economists predict that the Bank will keep the door open to more QE if the economy continues to struggle.
Will Rogers, policy advisor at Birmingham and Solihull Chamber of Commerce and Industry (BCI), said: “Although the decision to bring the £200 billion programme to an end is not surprising, the economy is still fragile. A significant boost of another £25 billion would have encouraged further business investment.
“The economy has only just achieved a 0.1 per cent growth, when experts predicted it was expected to reach 0.4 per cent. There are signs of recovery, but they are fragile. Manufacturing activity has recently hit a 15-year high but positive figures like this need to be sustained.
“Now is the time for organic growth, which is not helped by placing additional pressures on business through rate increases.”
The Bank of England’s decision to keep interest rates at 0.5 per cent was welcomed by Black Country Chamber of Commerce.
Peter Mathews CMG, President of Black Country Chamber said “The bank of England is correct to keep interest rates on hold. This decision will enable the UK to maintain price stability and therefore economic stability.
“The latest GDP figures indicate that we are officially out of recession, but many businesses are expecting a difficult start to 2010, so it is imperative that we maintain a relatively low interest economy to support growth and a sustainable recovery. It is unfortunate that the Bank of England has halted the quantitative easing programme, as this is designed to boost the economy.”
John Phillips, regional director of the Institute of Directors West Midlands said: “The MPC is engaged in a difficult juggling act. On the one hand anaemic GDP and money supply figures argue that quantitative easing should be extended, but on the other hand the increase in inflation has exceeded expectations and suggests a need for caution.
“Our view remains that until money supply growth strengthens further, sustainable recovery will be in doubt. A double dip or even triple tumble recession remains a serious possibility. We’ve experienced a very abnormal recession and we shouldn’t be in the least bit surprised if the recovery is abnormal as well.”
Chris Clifford, regional director, CBI West Midlands, said: “It is unsurprising that the Bank has kept interest rates and its quantitative easing (QE) policy at the same levels. The situation is finely balanced.
“The economy is stabilising but still faces some serious headwinds, and recovery remains shallow-rooted. However, near-zero interest rates, the existing £200bn QE package and the sharp fall in Sterling are already extremely expansionary, and inflation has exceeded expectations consistently in recent months.”
He added: “As the economy recovers the bank will have to start to think about returning monetary conditions towards more normal levels. We would expect this to lead to a small rise in interest rates around the middle of this year.”