Bank of England's Monetary Policy Committee keep interest rates at 0.5% but...

12 Jan 12

A record was set today, Thursday 12 January 2012 - The Bank of England's Monetary Policy Committee have kept interest rates at an all-time low of 0.5%. However, the decision comes with a health warning from the British Chambers of Commerce regarding the increase in Quantatitive Easing.

Commenting ahead of the MPC expected decision, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: "With the government's tough deficit-cutting measures squeezing domestic demand, and problems in the eurozone creating difficulties for our exporters, UK monetary policy must remain as expansionary as possible. We believe that UK GDP will still record weak positive growth in Q4 2011, but the challenges in the first quarter of this year will increase. Therefore, it is vital for the MPC and the government to adopt measures to offset negative influences and help stimulate the economy.

“A further £50bn increase in the Quantitative Easing (QE) programme, to £325bn, will limit adverse effects on domestic demand. It will also provide support to exporters by helping to keep the sterling exchange rate competitive. Many commentators expect the MPC to wait until February before acting, but we believe that an immediate announcement would boost confidence and ease concerns over the situation in the eurozone. However, the QE programme alone will not achieve its full potential to support growth without credit-easing measures that would improve the flow of credit to viable businesses.”

Jimmy Chestnutt, Chief Executive for Hampshire Chamber of Commerce agreed with the BCC and said of the local position, “The QE programme should provide the banks with vital funds to help existing businesses plan and expand; and new businesses to grow steadily. However, the British Chambers of Commerce are right to highlight the point that QE alone will not achieve the required result without additional credit-easing measures that would improve the flow of credit to viable businesses. It is important to recognise that the move by some Banks to convert overdrafts to business loans may in the short term assist businesses cashflow, however, those loans could in the longer term be restrictive and attract higher interest rates as businesses come out of recession.”

Please click onto the links below for more information including the latest RBS Interest & Exchange Forecast (Jan 2012) Report:

Useful links

http://www.bankofengland.co.uk/monetarypolicy/overview.htm

http://uk.reuters.com/article/2012/01/12/uk-britain-boe-rates-view-idUKTRE80B0PJ20120112

http://www.bbc.co.uk/news/mobile/business-16529313

http://www.britishchambers.org.uk/zones/policy/press-releases_1/mpc-should-act-boldly-and-increase-in-qe-says-bcc.html

http://www.hampshirechamber.co.uk/docs/RBS Interest & Exchange Rate Forecast Jan 2012.pdf

http://www.hampshirechamber.co.uk/news/All/1803

http://www.hampshirechamber.co.uk/news/All/1793

http://www.hampshirechamber.co.uk/news/All/1794

http://www.hampshirechamber.co.uk/news/All/1792