Was the Bank of England correct to leave monetary policy unchanged yesterday?

YES
Adam Chester

We believe that the decision of the Bank of England’s Monetary Policy Committee to keep interest rates on hold at 0.5 per cent was the right one. Having announced a range of measures to stimulate growth last month – including an increase in quantitative easing and the Funding for Lending Scheme – it should wait to assess how the economy is responding to these measures before considering further action. Our own internal surveys at Lloyds Bank suggest that the British economy may not be as weak as recent negative data releases suggest. Moreover, with interest rates already at a 300 year low, a cut in the bank rate from its current position is unlikely to have much impact. Instead, if economic conditions warrant it, the Bank of England should seek to extend quantitative easing again later in the year.

Adam Chester is head of UK macro economics at Lloyds Bank.

NO
David Kern

We don’t support a further increase in quantitative easing, but there is more that the Bank of England’s Monetary Policy Committee (MPC) can do to stimulate lending to businesses. More quantitative easing offers marginal benefits to the real economy, and could limit the fall in inflation which is vital at a time of dampened domestic and Eurozone demand. To support growth, and help overcome the obstacles to a revival in business lending, the MPC and the government should look to other measures. If the MPC agrees to purchase assets other than gilts, banks would be less risk-averse in lending to businesses. In addition, the MPC should also consider introducing a reduction in the interest rates paid by the Bank of England on deposits held by commercial banks. This could discourage cash hoarding and may provide a useful incentive to increase lending.

David Kern is chief economist at the British Chambers of Commerce.