Pressure on MPC for more QE
THE Bank of England’s Monetary Policy Committee is under pressure to launch a fresh round of quantitative easing today after new GDP figures suggested growth in the UK economy is slower than previously thought.
Revised second quarter figures from the Office for National Statistics but GDP growth at 0.1% rather than 0.2% as originally calculated.
Graeme Leach, chief economist at the Institute of Directors, said: “The GDP revisions make a very strong case to launch QE2. Firstly because they show just how perilous the recovery was in the first half 2011, and secondly because the back data also shows the recession was deeper than previously thought, with the implication that the output gap is still large enough to exert downward pressure on inflation. More QE is on the way, the only question is how much.
“The weakness of GDP growth in the first half of 2011 suggests the risk of a contraction in output in the second half of the year is very high. Hopefully we can still avoid a slide back into recession but it’s getting scary. Even without further intensification in the euro-zone crisis, the weakness of the economy makes the recovery highly sensitive to precautionary behaviour by companies and consumers. If the euro-zone crisis does intensify a return to recession looks inevitable.”
Many other commentators believe more QE will serve only to push inflation up, and will boost banks’ balance sheets, without having any impact on the ‘real’ economy, which is suffering both from a lack of lending and a crisis of cobsumer confidence.
The MPC meeting comes just days after Chancellor George Osborne insisted there would be no major revisions to the Government’s plans to cut the structural deficit in public spending.
David Kern, chief economist at the British Chambers of Commerce, said: “The UK economy is clearly facing difficult challenges and there is no need for undue pessimism. Our recent growth record is no worse than the major eurozone economies, and unlike them we are being more forceful in dealing with our public finances.
“These figures support our view that the Government must persevere with its deficit-cutting plan. However, it must be more active in pursuing growth-enhancing policies, such as reallocating priorities within the total spending envelope. On its part, the MPC must increase quantitative easing and think about adopting other radical measures aimed at supporting the recovery.”
