Friday 25 May 2018

British business leaders demand increased quantitative easing as economy stalls

BANK of England policymakers were today urged to act and roll out further emergency measures amid signs the economy is stagnating and consumer confidence is plummeting.

British business leaders called for the Bank's Monetary Policy Committee (MPC) to increase quantitative easing (QE) levels after figures revealed economic growth in the first half of the year was weaker than first thought.

Most economists expect the MPC to announce a boost to QE in November or beyond - but some have predicted a move today. The MPC is not expected to lift interest rates from record lows of 0.5%.

The MPC monthly meeting also comes after the Office for National Statistics (ONS) revealed the 2008/09 recession was deeper and sharper than first originally feared.

David Kern, chief economist at the British Chambers of Commerce, said he expected the MPC to increase the QE stock from £200bn to £250 billion.

He said: "While the government must continue to implement its tough deficit-cutting programme aimed at stabilising our public finances, every effort must be made to reduce risks of a setback."

Some economists yesterday warned a double-dip recession was now more likely but the Treasury said it would not alter its deficit-busting austerity measures despite the bleaker picture.

Howard Archer, chief UK and European economist at IHS Global Insight, said "the risk of renewed recession has clearly risen recently".

He added: "The adjustments to the GDP history do not change the current situation which is of an economy struggling for growth in the face of major domestic and international headwinds."

Gross domestic product grew 0.1pc between April and June, compared with an earlier estimate of 0.2%, while the first quarter was downgraded to 0.4pc from 0.5pc, the ONS said.

Elsewhere, falling consumer confidence was underlined by gloomy trading updates from the City.

Children's retailer Mothercare, which has 353 stores in the UK, said the outlook had "materially worsened", while airline Flybe noted a significant slowdown in September.

The Bank's decision comes amid increasing fears over the future of the eurozone as Greece fights to stave off a debt default, Italy's public finances come under pressure and major European banks falter.

Scott Corfe, senior economist at think-tank Cebr, said the GDP figures "only strengthen the case for further quantitative easing from the Bank of England to prop up the economy over the coming quarters".

He expects an additional £50 billion of asset purchases to be announced before the end of the year.

Manufacturing, service and trade surveys have recently pointed towards a slowdown or possible contraction in growth for the third quarter. Official GDP estimates for July to September will be released on November 1.

However, PMI services data for September, released yesterday, showed a boost to new orders and stronger demand in the dominant sector.

A spokesman for the Treasury said: "The economy is recovering from a recession we now know was deeper than we thought and the deepest of any major economy except Japan."

Meanwhile, the revisions revealed the UK suffered a much deeper recession in 2008 than previously thought.

The UK economy shrank 1.3pc, 2pc and 2.pc in the final three quarters of 2008, compared with previous estimates of 0.3pc, 0.9pc and 2.1pc.

However, the emergence from recession in 2009 was slightly better than first estimated, with declines of 2.2pc and 0.8pc in the first two quarters being revised up to 1.6pc and 0.2pc, and the third quarter now showing 0.2pc growth, compared with a 0.3pc fall.

The number of businesses in the UK declined by 20,000 in the year to March 2011, the ONS added.

Press Association

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