Inflation Fears Cause Bank to Decide against More QE; GOVERNMENT URGED TO ADDRESS ACCESS TO CREDIT FOR BUSINESSES

Western Mail (Cardiff, Wales), May 11, 2012 | Go to article overview

Inflation Fears Cause Bank to Decide against More QE; GOVERNMENT URGED TO ADDRESS ACCESS TO CREDIT FOR BUSINESSES


Byline: RHODRI EVANS

THE Bank of England has resisted pumping more emergency cash into the economy amid fears that inflation is not falling back as quickly as expected.

The most recent pounds 50bn injection into the Bank's quantitative easing (QE) programme took place in February but members of the monetary policy committee (MPC) have vetoed increasing the stock of asset purchases from pounds 325bn.

Interest rates were held at their record low of 0.5% but economists said the verdict of the nine-strong committee on QE would have been a close call. They think that a further round of QE could still take place by August.

Despite the UK's return to recession in the first quarter and renewed tensions in the eurozone, it is likely that members were influenced by inflation remaining stubbornly high at 3.5% in March, against expectations that it will meet the Government's 2% target by the end of this year.

Ian McCafferty, the CBI's chief economic adviser, said: "The combination of sluggish activity and sticky inflation put the MPC in a difficult position, and this decision is likely to have been a close call.

"But it appears that the persistsible ence of inflationary pressures tilted the balance in favour of keeping the stock of asset purchases unchanged."

He said another round of QE cannot be ruled out but he remained hopeful that the UK's recovery will be on a firmer footing in the second half of the year, as inflation eases and the global economy strengthens.

David Kern, chief economist at the British Chambers of Commerce said he thought the MPC had made the right decision.

"The Monetary Policy Committee must look to make better use of the existing levels of quantitative easing, and to make sure viable businesses are able to access the finance they need," he said.

"The government must consider the creation of a business bank, which would address the problems faced by firms trying to get credit."

Pressure for more stimulus measures has intensified amid the recent deepening in the eurozone crisis and after figures showed the UK in a technical recession, with gross domestic product declining 0. …

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