BDO: Quantitative easing needed to stimulate UK’s economic growth

 
Steve Dinneen
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FINANCIAL services firm BDO has called for an extra £50bn to be pumped into the economy through quantitative easing to maintain the economic recovery.

The firm backed MPC member Adam Posen’s call for more quantitative easing in the fourth quarter.

BDO’s Business Trends forecast is predicting slower than expected growth for the first half of 2011, which it says could derail the government’s spending cuts programme.

The forecast goes against predictions made in the Comprehensive Spending Review (CSR), which expects growth of 0.5 per cent in the first quarter of 2011 and 0.6 per cent in the second quarter, with economic conditions continuing to improve going forward.

But BDO warns growth in the UK economy could grind to a halt in the first quarter of 2011 and suffer negative growth in the second.

Peter Hemington, a partner at BDO, said: “We are worried that it is already beginning to look as if the government’s growth figures don’t stack up.

“The key risk for the CSR is that economic growth is much more fragile than we thought a few months ago. The government will be concerned about its credibility with the markets if it signals a desire to back away from its retrenchment programme.

“But the balance of risks has clearly changed since the election and the Chancellor would be wise to consider whether he can go slower than planned with cuts.

“Posen has called for a new injection of quantitative easing and we believe that he is right. An extra £50bn has to be injected in the economy before the end of 2010 to stimulate the growth we so desperately need.”