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BOE Stimulus Expansion May Not Be Enough to Revive U.K. Recovery, BCC Says
More Bank of England stimulus may not be enough to revive U.K. economic growth and the government must improve companies’ access to credit to aid the recovery, the British Chambers of Commerce said.
The BCC forecasts policy makers will increase their target for bond purchases by 50 billion pounds ($77 billion) to 325 billion pounds in the first quarter. Still, Chief Economist David Kern said “this will not achieve its full potential in supporting growth unless supplemented by the early introduction of a sizable and effective credit-easing program.”
Britain’s economy probably stagnated in the fourth quarter, and U.K. banks (F3BANK) expect to tighten criteria on loans this year because of strains in funding markets related to the euro-area debt crisis, which may further impede investment and economic growth. The Bank of England is in the last of a four-month round of bond purchases and some policy makers have indicated more stimulus may be needed.
“A new recession is not a foregone conclusion,” John Longworth, director general of the London-based BCC, said in an e-mailed statement today. “However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing euro-zone crisis.”
The Monetary Policy Committee will maintain its bond- purchase target (UKAPTARG) at 275 billion pounds on Jan. 12, according to all but one of 41 economists in a Bloomberg News survey. It will also keep its benchmark interest rate at a record low of 0.5 percent, according to a separate survey of 53 economists.
Economic Outlook
The BCC said U.K. growth (UKGRABIQ) will probably stagnate until the middle of 2012, “with one quarter very likely in negative territory.” A survey it published today showed manufacturing failed to expand in the fourth quarter, while the services industry had “minimal growth.”
An index of domestic factory sales fell to the lowest since the third quarter of 2009, while a gauge of domestic sales at services companies remained “very weak.” Measures of manufacturing export sales and orders dropped to their lowest since 2009. The employment outlook also fell, according to the survey of 7,852 companies between Nov. 14 and Dec. 5.
Longworth said authorities should focus on measures such as increasing the flow of credit to businesses. If the implementation of the government’s credit-easing program “takes much longer, the economy would be better served by the creation of a full-blown” bank dedicated to lending to small and medium- sized companies, he said.
“Recession is still avoidable, but risks of a setback have increased,” Kern said. “The worsening international situation and the growing risks facing the euro zone will cause U.K. exporters difficulty.”
The Bank of England raised its target for bond purchases by 75 billion pounds to 275 billion pounds in October as the economic outlook deteriorated. The purchases are due to be completed in February.
While some officials have said more stimulus may be needed, they noted in the minutes of their December meeting that market capacity “made it difficult to increase the monthly rate of purchases substantially above what was already under way.”
To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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