Calls for QE to be expanded

THE worst of the recession may be over but the Bank of England should expand its £125bn quantitative easing (QE) programme to ensure the economy stabilises rather than heads into a double-dip recession, the British Chambers of Commerce (BCC) said.

David Kern, chief economist at the BCC, said: “With cashflow, capacity utilisation, and price pressures remaining weak, it is important that the short-term policy stance stays expansionary.”

He added: “I want to see the MPC intensify and accelerate the pace of quantitative easing. It should certainly use up the final £25bn and they will have to go, and should go, beyond that – I think they will need £180-200bn of QE.”

George Buckley, chief UK economist at Deutsche Bank, suspects that QE will be the one of the last measures withdrawn and interest rate hikes will come first.

However, he said that UK household indebtedness stands at 170 per cent of GDP – the highest in the G7 – posing a serious risk to recovery.

Although the BCC’s quarterly economic survey shows progress in both manufacturing and service sectors – including a marked strengthening in confidence – levels are still very weak by historical standards, and need to be encouraged, it said.

The BCC’s director general David Frost said: “The government has to nurture this confidence, not snuff it out nor take it for granted. Signs of improvement cannot be an excuse to increase business tax.”

The BCC’s concerns were echoed by World Bank president Robert Zoellick, who told the G8 recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain.