Home Business News Business leaders welcome fresh round of QE

Business leaders welcome fresh round of QE

by LLB Editor
6th Oct 11 3:18 pm

Business leaders have welcomed the Bank of England’s decision to inject an additional £75bn into the economy to help the UK’s choppy recovery.

The Bank’s quantitative easing (QE) programme has been increased from £200bn to £275bn after a vote by its Monetary Policy Committee (MPC). Interest rates remain unchanged at 0.5 per cent. The QE programme effectively means the Bank prints more cash, but it does come with the risk of accelerating the country’s inflation rate.

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However, it is believed the Bank has altered QE for the first time since November 2009 because it fears Britain could be edging ever closer to a double-dip recession. The Bank said it increased QE as “tensions in the world economy threaten the UK recovery” and the slack economy is expected to be “greater and more persistent than previously expected”.

Figures have recently shown that Britain suffered a deeper recession and is recovering slower than originally thought, prompting business leaders to call for more assistance in stimulating the economy.

British Chamber of Commerce (BCC) chief economist David Kern said: “In the face of the risks facing Britain’s recovery, it is important to make every effort to underpin business confidence and avoid a setback. However, higher QE on its own is not enough, and we urge the MPC to look at other radical methods.”

The increase to the Bank’s QE programme was also welcomed by Federation of Small Businesses national chairman John Walker. However, he added: “It is important that in an attempt to boost short-term demand that small businesses can directly benefit from this cash injection and that the banks use it to decrease the cost of credit and to increase the availability of lending.”

QE was found to have offered a “significant” benefit to growth and helped the GDP go up by approximately 1.5 per cent to two per cent, according to a report by the Bank. This is a similar boost to dropping interest rates by between 1.5 per cent and three per cent, it added.

CBI chief economic adviser Ian McCafferty said risks to the economic outlook had seen the Bank act promptly. 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.”

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