Money Policy Committee should do more to boost lending & stabilise business environment

“Next week’s meeting, the second under Mark Carney’s chairmanship, will allow the MPC to explain their plans for future monetary policy in a bit more detail. Most analysts expect the MPC to make no changes this month, holding interest rates at 0.5% and the Quantitative Easing (QE) programme at £375bn. We believe this would be the right decision, especially as this week’s positive GDP figures weaken the case for more QE in the near future.

“Our view is that more QE will make little difference to the economy, while heightening longer-term risks of bubbles and higher inflation. Businesses need a stable economic environment with low interest rates. The MPC should therefore be more explicit in explaining that unless inflation accelerates, official interest rates will be kept at their current low level until early 2015. The Committee should also consider more measures to help boost business lending. If the MPC used the existing QE programme to purchase private sector assets other than gilts, including securitized SME loans, banks would be less risk averse when they lend to these firms.”