The British Chambers of Commerce believes the Bank of England will increase its programme of quantitative easing by £50bn, from £200bn to £250bn, before the middle of 2011.
It believes the Bank will need to step in and provide extra QE if there is a threat to growth in that time and predicts interest rate levels are to remain at 0.5 per cent until at least the third quarter of 2011.
BCC chief economist David Kern says: “We assume that the Monetary Policy Committee will keep the bank rate at its current 0.5 per cent level until at least Q3 2011. Given the risks of a setback to growth in the first two to three quarters of 2011, we expect the MPC to increase the QE programme from £200bn to £250bn before the middle of next year.”
The BCC has also lowered its UK gross domestic product growth estimate from 2.2 per cent to 1.9 per cent for 2011.
But it has raised its prediction for 2012 from an initial growth estimate of 1.8 per cent to 2.1 per cent.
The downward revision to the 2011 forecast reflects the fact the BCC thinks the effects of the Government’s austerity plan will be more serious than expected. It says this is due to lower house prices and other signs of “financial fragility” in UK households.
The BBC has revised the 2012 growth figure upwards because it expects the private sector to become stronger in the future. It suggests the Government concentrates on promoting private sector growth in the future.
BCC director general David Frost says: “British business is willing and able to drive the recovery. But it can only do so if the Government will back its words with deeds. Promoting stronger economic growth should be the Government’s main policy priority next year and beyond. 2011 must be a year for growth – in every area of the UK – with small- and medium-sized businesses leading the way.”