INFLATION REPORT STILL TOO OPTIMISTIC SAY BCC
May 16 2012.


Commenting on the inflation report published today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: "The new inflation report highlights the challenges the economy will encounter over the next few years. The government's austerity measures, combined with difficulties in the eurozone, will undoubtedly limit the UK's growth prospects. Though the Bank of England has revised down forecasts for growth, they may still be too optimistic.

"That said, there will be a gradual strengthening in the pace of UK growth from the second half of 2012 onwards. The Bank of England's report also shows a more realistic assessment of inflation, with the expected fall lower than predicted last quarter.

"The inflation reports leaves the options open for the Monetary Policy Committee (MPC). If the eurozone situation deteriorates, and sterling strengthens much further against the euro, calls for more Quantitative Easing (QE) will increase. However, we think the MPC should maintain QE at current levels. Further increases in QE are unnecessary at the present time since it has not led to a meaningful rise in lending to small and medium-sized firms. Instead, the MPC must focus on boosting the flow of credit to viable businesses, by purchasing private sector assets, and the government should consider the creation of a business bank."