British Chambers wants brake on QE as inflation pressures ease off

Business leaders yesterday called on the central bank to hold back from further money printing amid fresh signs that inflation has come off the boil.

Bank of England policymakers have been pumping billions of pounds into the economy through quantitative easing (QE) and Funding for Lending schemes and are facing pressure to extend the financial lifeline as the recession maintains its grip.

Inflation, meanwhile, has been falling and some analysts fear that too much monetary stimulus could risk pushing prices higher again.

Official data yesterday showed that the price of goods leaving British factories – so-called factory gate inflation – had eased to the slowest pace in nearly three years last month. The figures indicate that price pressures are easing and support the central bank’s view that consumer price inflation will hit its 2 per cent target towards the end of this year.

The British Chambers of Commerce described the producer price figures as “positive overall” and noted that falling inflation would be “key in easing pressures on disposable incomes and underpinning demand in the economy”.

However, the organisation’s chief economist, David Kern, argued: “The [Bank’s] monetary policy committee should not use additional QE to limit the fall in inflation.

“In recent years, UK inflation has consistently been above the 2 per cent target. A temporary period of inflation lower than this level in 2013 would benefit the economy and should not be resisted.”

The Office for National Statistics (ONS) is likely to say next week that inflation held steady at 2.4 per cent in July, though some economists are forecasting a dip to about 2.3 per cent. In March, inflation stood at 3.5 per cent having hit a three-year high of 5.2 per cent last September.

Howard Archer, chief UK economist at IHS Global Insight, the forecasting group, said: “Inflation is expected to have been limited in July by ongoing marked discounting by retailers while annual food price
inflation may well have dipped further.

“However, this is likely to have been countered by a move back up in petrol prices.”

Yesterday’s statistics showed that producer output prices rose just 1.7 per cent on the year, compared with a downwardly revised 2.0 per cent rise in June and below forecasts for a 2.1 per cent increase. This was the lowest rate since October 2009.

Separate data, meanwhile, revealed a less severe decline in construction sector output than previously estimated.

Output between April and June fell by 3.9 per cent quarter-on-quarter, the ONS said, compared to a previous estimate of a 5.2 per cent decline.

While the decline still shows a struggling construction sector, with new infrastructure projects weighing most heavily on the industry, analysts said the figures could lead to an upward revision in total economic growth for the period.

Within the figures, the ONS said the volume of all new work fell by 4.6 per cent with repair and maintenance down by 2.7 quarter-on-quarter.

The largest falls in new work were seen in public housing, infrastructure and other public non-housing, while the decline in maintenance work was steepest in private housing.

Steve McGuckin, managing director of construction consultancy Turner & Townsend, said: “All the sunshine and Olympic feelgood factor in the world can’t hide the fact that these are black days for construction.

“The big drop in infrastructure output is of particular concern for the economy as a whole.”