ITEM Club comments on today's MPC decision

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s MPC decision:

  • Additional QE in July was a foregone conclusion
  • We are strongly in favour of looser monetary policy and welcome the steps taken recently by the Bank
  • But while these may help to support credit supply, whether there is sufficient demand remains open to question

“Events over the course of last month provided plenty of evidence that the Bank would authorise further asset purchases this month. The narrow vote in June's MPC meeting, coupled with the Governor’s Mansion House speech, indicated that MPC members have become very concerned about the growth outlook. The drop in inflation in May and downbeat PMI surveys for June meant that the implementation of additional QE in July was almost foregone conclusion. 
“We remain strongly in favour of looser monetary policy, not just through additional QE but also more unconventional means. In this regard, we support the schemes introduced last month, which are aimed at lowering banks' borrowing costs and increasing the amount of liquidity available to them.
“However, while limited credit supply is one of the factors contributing to low levels of lending in the UK, a lack of demand is playing a major role as well. Today’s announcement should help with this, but further support may be needed in the future. “