On 9th January we touched on the expectancy of yet a
further round of Quantitative Easing (QE), however the week ended
with the Bank's Monetary Policy Committee (MPC) voting for no
change in the fiscal policy, keeping interest rates at their record
low of 0.5% and Quantitative Easing (QE) at £275 billion.
The decision of the Bank's MPC last Thursday, to maintain the
rates at their current level, follows three closely watched surveys
from the Services, Manufacturing and Construction sectors that
pointed to genuine growth in December. Economists believe that the
results of these surveys suggest that the British economy may be in
a state of stagnation rather than contraction, thus decreasing the
need for an expansionary fiscal policy.
QE was last increased by £75 billion in October and David Kern,
chief economist at the British Chamber of Commerce (BCC) which
represents around 100 000 British businesses, calls for banks to be
more generous with the available QE allowance in order to boost
growth and avoid any further setbacks.
"Since the challenges facing the UK economy will increase in the
first quarter of 2012, a further £50bn increase in QE to £325bn
would be welcomed by hard-pressed businesses. An immediate increase
in QE would strengthen confidence and help to contain sterling
rises against the euro, at a time when we must maintain the
competitiveness of our exports. Sterling has risen by some six per
cent against the euro in the last three months and this puts
unwelcome pressure on British exporters," Mr Kern said.
He continues: "QE will only achieve its full potential to
support growth if it is supplemented by effective measures aimed at
improving the flow of credit to viable businesses. The government
must swiftly implement its promised credit easing measures, and the
Bank of England should play its full part in supporting such an
initiative."
Economists, however, believe that markets will not be able to
contend with more QE at this stage, due to the underlying fact that
the last round is not due to finish until the end of February and
by holding back on more QE, the MPC is allowed more time to assess
whether underlying inflationary pressures are easing. This stance
seems to have offered the Bank of England a fair degree of solace,
as figures released on Tuesday indicate that Britain's high rate of
annual inflation slowed in December, for the third month in a row.
We have seen the annual rise in the Consumer Price Index (CPI) slow
from 5.2% in September to 4.2% in December - reflecting lower fuel
prices and widespread discounting on the high street.
Recent research by Graydon UK suggests that in addition to the
QE programme, there is still a requirement for an additional link
to improving UK SME's access to finance. Our research which looked
at the number of successful company financing deals lodged at
Companies house over the past decade indicates that the number of
UK companies being granted business loans and mortgages has
plummeted by almost 50% since 2007. All UK companies are required
to inform Companies House after offering collateral security to a
financial lender and our figures indicate that there were 100 000
fewer mortgages and loans being registered in 2011, compared to
2007, just before the credit crunch crisis took hold in 2008.
The Government has recently introduced further assistance to
SME's in the form of a credit easing programme announced by George
Osborne last October, which aims to improve lending and confidence
in the economy. Under the scheme, the treasury will buy small
firms' corporate bonds providing cash direct to struggling firms
unable to gain funds from the banks. The initiative is separate
from the quantitative easing by the Bank of England which is, in
effect, the printing of money. The proposal - an admission that
banks are still not lending adequately - represents a major step by
the Treasury and brings it closer to direct involvement in monetary
policy, formerly the sole preserve of the Bank.
(JE)
