Today’s decision to keep interest rates at 0.5 per cent and to opt against a further extension of the quantitative easing programme will do nothing to help business growth, say business leaders in Birmingham.
Rate-setters held back from further help to the economy after monetary policy was left unchanged, and the Bank of England also chose not to alter its quantitative easing (QE) scheme to boost the money supply, leaving the current total at £200 billion.
Paul Bassi, President of Birmingham and Solihull Chamber of Commerce and Industry said: “Lack of cash flow is still hindering business development. But the economy needs interest rates at this level until such time as we conclusively see stability and growth.
“To boost bank lending, a viable option would have been to cut interest rates further. Money supply remains a concern and it is imperative that the right conditions for expansion are created in the first quarter of 2010.
“We eagerly await the final quarter GDP figures which we expect will show that we have exited recession. However, any sort of recovery will be extremely fragile.
The Monetary Policy Committee (MPC) decision was widely predicted by economists who believe last month’s £25 billion increase to QE showed the Bank was moving down a gear on the programme.
It comes amid optimism that the economy will pull out of recession before the end of this year, having suffered six successive quarters of negative output.
Minutes of November’s meeting showed policymakers were divided three ways over their decision on how to boost the economy.
Chief economist Spencer Dale did not want to increase the money-boosting programme at all, while external member David Miles thought a £40 billion boost was appropriate and the remainder supported the £25 billion increase.
Governor Mervyn King warned last month that the UK economy had “only just started” along the road to recovery.
November’s QE increase marked the smallest in the policy since it was launched in March - and far less than the £50 billion predicted in the wake of disappointing third quarter gross domestic product (GDP) figures.
While the economy is widely predicted to pull out of its slump in the final quarter of this year, recent figures have indicated that the path of the UK recovery may not be smooth.
Official data this month showed output in the hard-hit manufacturing sector stagnated in October and survey evidence from the Chartered Institute of Purchasing and Supply (CIPS) showed the UK’s crucial services sector weakened during November.
Figures yesterday also showed the UK’s trade gap rose to a nine-month high in October, with the level of imports outstripping exports.
This came despite an export boost from car scrappage schemes and represented a blow to the Bank’s efforts to encourage the economy to shift away from a heavy reliance on imported goods - as record low interest rates weakened the pound and should have helped UK firms selling to overseas markets.
But there are more positive signs from some sectors, with figures from the Council of Mortgage Lenders today suggesting the number of mortgages advanced to people buying a home reached its highest level since December 2007 during October.
Howard Archer, of IHS Global Insight, predicted that policy tightening was still some way in the future, while rates could stay at current levels until at least the end of next year and possibly 2011.