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Mixed regional response to second round of Quantitative Easing

The government yesterday announced plans to expand quantitative easing from £200 billion to £275 billion.

The Bank of England has come under increasing pressure to print more money, and while market forecasters were expecting a second round of quantitative easing, it was only for £50 billion.

The Governor of the Bank of England believes that this financial crisis “could be the worst tne UK has ever seen”.

Sir Mervyn King made the comments to Sky News after the Bank pumped a further £75 billion into the economy.

He described the current financial situation as a “very unusual set of circumstances”, and said that we “must act calmly and do the right thing”.

For several months the Bank of England’s Monetary Policy Committee has been divided over whether the UK needs a boost through quantitative easing, an increase in interest rates which already sit at 4.5%, or to leave things as they are.

Sir King also refused to rule out another round of quantitative easing, because money is not growing fast enough.

This decision has been met with a mixed response in the North East, and while the news have given the UK stock market a serious boost, the impact of this decision remains unclear.

John Dance of Vertem Asset Management believes that it is unlikely that this cash boost will significantly improve the commercial lending environment and stimulate growth via investment.

He commented: “Stimulus is almost definitely required for the UK, as austerity and the uncertainty had begun to bite, but using the freshly printed money in a more imaginative manner by injecting it into the economy would have made more sense.

“The US launched a second round of quantitative easing in November last year and the economic picture that developed over the following 6-9 months would suggest that the impact was fairly minimal.”

Local businessman John Elliott, chairman of the Ebac Group took a harsher line, criticising the government for “borrowing more to solve the problem of too much borrowing”, but also called for the government to use the money in a more constructive way.

He said: “ Instead of paying people not to work, we should build modern factories to produce the goods we currently import.

“We currently have a trade deficit of about £27 billion per annum, which equates to about £400 for every person in the country, so if we are paying people to do nothing it wouldn’t take much extra to pay them to do something.”

However, the North East regional vice chairman of the Federation of Small Businesses Ted Salmon was keen to voice his support for the cash injection. He now hopes that this new round of credit easing will make it easier for small businesses to access finance, which in turn could encourage sustained growth.

He added; “It is important that in an attempt to boost short term demand than small businesses can directly benefit from this cash injection and that the banks use it to decrease the cost of credit and to increase the availability of lending.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .