MPC could be close to reviewing QE – business leaders

BUSINESS leaders in the West Midlands have said that a fresh bout of quantitative easing could be on the agenda at future meetings of the Bank of England’s Monetary Policy Committee.

John Rider, chairman of the Institute of Directors in the West Midlands, said the poor supply of money was starving the economy of growth.

The influential policy-making body has agreed to hold interest rates at their historic low of 0.5% for a further month. The MPC also opted not to touch QE.

However, Mr Rider said it may only be a matter of time before this changed.

“The Bank of England has held fire for another month but we think a fresh bout of quantitative easing is likely.

“While above-target inflation stopped the MPC from extending QE this month, the economic threat from weak money supply growth looms ever larger,” he said.

On the rate itself, he added: “The region’s economy is still too fragile to be able to stand an increase in the cost of borrowing.”

However, the Coventry and Warwickshire Chamber of Commerce has welcomed the decision to hold interest rates at current levels.

Louise Bennett, the chief executive of the chamber – which represents over 1,500 companies Coventry and Warwickshire, said: “Officially, the recession came to an end at the beginning of this year and there have been positive signs for the economy since.

“But our view, from speaking to firms on this patch, is that the economic recovery hangs in the balance and that companies need all the help they can get if they are to grow and create the jobs needed to rebalance this economy.”

Lai Wah Co, CBI Head of Economic Analysis, said: “In recent weeks there has been more talk about the need to expand monetary policy, amid concerns about how quickly growth momentum will fade in the coming quarters at home and abroad. However, economic indicators still suggest the UK recovery is on track, although we expect it to be bumpy and slow.
 
“Our view is that monetary policy is likely to stay on hold for a while, as the Bank monitors economic developments.”   

Mark Smith, regional chairman at PricewaterhouseCoopers in the Midlands, said that with just over a month to the Government spending review, it was predictable that rates would be held.

“Recent reports about a dip in orders in the construction sector during quarter two and a slowdown in the manufacturing sector are adding to the current uncertainty about the economy and with inflation now moving in the right direction, a rise in interest rates now would be mistimed,” he said.

He agreed with the analysis by the IoD and said that QE increases could not be ruled out.