The Bank of England should increase its emergency bond-purchase plan by 50 billion pounds ($79 billion) by the end of the year to aid the economic recovery, the British Chambers of Commerce said.
The Monetary Policy Committee should also signal that the benchmark interest rate will remain “at very low levels for an extended period,” the London-based lobby group’s chief economist, David Kern, said in an e-mailed statement. The bank will today keep the stimulus plan at 200 billion pounds and key rate at 0.5 percent, Bloomberg News surveys of economists show.
“Given the serious risks of an economic setback, which will worsen when value-added tax goes up next year and austerity measures are implemented more forcefully, we hope that the MPC will seriously consider the option of increasing” its stimulus program, Kern said in the statement. Expanding stimulus “will reduce the dangers of a new recession.”
Britons are bracing themselves for the deepest spending cuts since World War II, while recent data showed the economic recovery has started to falter. An index of U.K. manufacturing fell to a 10-month low in September, while jobless claims increased in August for the first time in seven months. The central bank will announce its decision at noon in London.
“The committee must also signal that interest rates will remain at very low levels for an extended period,” Kern added. “British business will find it difficult to drive the recovery without such reassurance, and it is important to remember that continued uncertainties can damage confidence.”