The Bank of England needs to launch further quantitative easing as well use “radical methods” to bolster growth, one of the country’s leading business groups argues.
According to the British Chambers of Commerce, the ongoing sovereign debt crisis on the periphery of the eurozone and signs of a slowing in the UK economy heighten the need for the Bank’s Monetary Policy Committee to act “resolutely” at its meeting on Thursday.
David Kern, the chief economist of the BCC, says the asset purchase programme should be lifted from its current £200 billion to £250 billion, while the committee should “consider more radical methods”.
Kern recommends the additional quantitative easing resources should be allocated to the purchase of securitised small and medium-sized business loans and other private sector assets.
Furthermore, the Bank of England (BoE) should boost the availability of credit by introducing negative interest rates on deposits held by commercial banks, he says.
The economist also suggests the Bank announces that the base interest rate will be held at its current level until the end of 2012, as the Federal Reserve has done in the US, to strengthen business confidence.
“While implementing some of these ideas may cause technical problems for the MPC, these are not insurmountable. Even if success cannot be guaranteed, the MPC must be more proactive,” Kern says.
“We appreciate that the committee will be concerned by above-target inflation, but the threats to growth are more serious at the present time.”
Last month, the BCC cut its UK growth forecast for the third time this year, predicting that the economy will grow by just 1.1 per cent over the course of 2011.