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Monday
Nov022009

Spend £50 billion to beat the recession, urge businesses

Businesses want the Bank of England to pump another £50 billion in to the economy to try and beat the recession.

Britain is the last of the world’s ‘big economies’ to languish in the slump – and businesses say the reason lies with the bank not having a radical enough quantative easing policy when the USA, France and Germany have moved out of recession by following the same policy but spending more. The decision will be made at a meeting of the bank’s monetary policy committee on Wednesday (November 4).

So far, the bank has printed £175 billion to buy back government assets like bonds to capitalise banks with cash for lending to business and borrowers.

David Kern, chief economist at the British Chambers of Commerce, said this week's meeting would be "extremely important" and called for an immediate £25 billion increase in the policy to £200 billion, "with the option of additional increases later on".

With many small firms still complaining it is tough to raise money, Kern repeated his call for lenders to be charged for the deposits they hold at the bank, "to penalise banks hoarding cash and provide an incentive to lend to viable, credit-worthy customers".

The problem with the quantative easing is the banks have had the cash but are leaving it on deposit at the Bank of England, where they are receiving interest, rather than lending the money to cash-strapped businesses. 

This means that the money is sitting on the banks’ balance sheets rather than being dispersed in the economy to relieve the recession.

Many businesses consider the banks are looking after themselves first and the economy second with this non-lending strategy that is forcing businesses with good credit ratings to tread water and even close.

Interest rates will also be discussed in the meeting, but the consensus of most analysts is rates will remain unchanged and they will stay that way for at least another year.

The feeling is that interest rates cannot rise until quantative easing ends and the UK comes out of the downturn without further damaging the economy.

 



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