Business leaders in the West Midlands have welcomed the Bank of England’s decision to keep interest rates at 0.5 per cent for the 32nd month in succession and inject £75 billion into the economy.
Birmingham Chamber of Commerce Group (BCCG) said it had been important for the Bank’s Monetary Policy Committee to consider further quantitative easing (QE) but it’s now vital that the Government looks at credit easing (CE) through which the Treasury would, indirectly, make loans available to businesses.
Ross Gurdin, policy adviser at the BCCG, said: “We applaud the MPC for injecting £75 billion through QE. However, there is confusion about how CE would work and we urge the Chancellor to announce details of how it would work when he makes his Autumn Statement.
“We expect that CE will see the treasury purchasing corporate bonds which could inject much-needed credit into cash-strapped businesses. This system has been used in Japan and the USA but we need to know details of how it will work here.
“It doesn’t affect government borrowing as it is linked to assets and interest will be charged so the Government could make money from it. While we would not like to see the government trying to ‘pick winners’ we feel that CE should be aimed at high growth businesses with the potential to create jobs and wealth.”
The Bank of England said it boosted QE because “tensions in the world economy threaten the UK recovery” and the slack in the economy is likely to be “greater and more persistent than previously expected”.
The decision was welcomed by business leaders who have called for help to stimulate the economy after figures revealed that Britain suffered a deeper recession and is recovering more slowly than first thought.
A report by the Bank into the effect of QE on the economy previously found that the stimulus measure provided a “significant” benefit to growth and helped GDP increase by around 1.5 per cent and 2 per cent. This was equivalent to dropping interest rates by between 1.5 per cent and three per cent, the Bank found.
Ian McCafferty, CBI chief economic adviser, said the Bank had “acted promptly” in the face of risks to the economic outlook.
He said: “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.”
Economists warned yesterday that a double-dip recession was looking more likely.
Gross domestic product grew 0.1 per cent between April and June, compared with an earlier estimate of 0.2 per cent, while the first quarter was downgraded to 0.4 per cent from 0.5 per cent, the ONS said.
Mike Ashton, spokesman for the West Midlands Chambers of Commerce, said: “The decision to keep interest rates static will encourage companies to look to export markets.
“Figures show that the number of export documents processed in Birmingham alone for the first six months of this financial year is 14 per cent up on the same period last year and six per cent up on the second half of last year.