Bank could take prompt action if economy fails to pick up, says Carney

- Advertisement -

Bank of England boss Mark Carney has said policymakers are mulling over the possibility of an interest rate cut, and stressed action would be “prompt” if the economy remains under pressure.

The pound fell sharply after the outgoing governor confirmed the Bank’s rate-setters were weighing up the merits of “near term stimulus” to boost flagging UK growth.

In a speech at a Bank event on inflation targeting, Mr Carney said the predicted rebound in the economy was “not, of course, assured” amid ongoing Brexit uncertainty and amid a wider global economic slowdown.

He said: “As is entirely appropriate, there is a debate at the MPC (Monetary Policy Committee) over the relative merits of near term stimulus to reinforce the expected recovery in UK growth and inflation.”

“With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response,” he added.

The comments come after two of the MPC’s nine members have voted for a cut in rates from 0.75% to 0.5% at the last two meetings.

But the tone of Mr Carney’s remarks are seen as particularly “dovish” for the rates outlook, sending the pound down 0.4% to 1.30 US dollars and 0.5% to 1.17 euros.

David Cheetham, chief market analyst at XTB, said: “While this shouldn’t come as a huge surprise given that there has been a couple of MPC dissenters calling for lower rates at the past two policy meetings, it is the strongest hint yet for a rate cut in the not too distant future.”

Mr Carney also gave assurances over the Bank’s firepower to boost the economy, saying that there was “sufficient headroom” to at least double the £60 billion of asset purchases made by the bank in August 2016.

Recent economic figures showed the economy suffered its worst three months for more than a decade, with zero growth in October.

The Office for National Statistics said the economy saw zero growth
month-on-month in October, following two months of declining gross domestic product (GDP).

This marked the first time the economy has failed to grow for three months in a row since early 2009 amid the recession following the financial crisis.

The latest monthly GDP data for November on January 13 will be closely watched for any signs of improvement.

The Bank is forecasting for growth to gradually recover, if a Brexit deal is sealed and removes the damaging uncertainty that is weighing on the economy.

But in Mr Carney’s latest comments he warned the economy has been “sluggish, slack has been growing, and inflation is below target”.

“Much hinges on the speed with which domestic confidence returns,” he said.

Mr Carney, who is due to leave in March, said there is hope the flagging UK economy will pick up, given that global growth is showing tentative signs of stabilising.

He also said there had been “some signs” of easing Brexit and political uncertainties since last month’s decisive Conservative party win at the general election.

The Bank will make its next decision on rates on January 30.

- Advertisement -
- Advertisement -
- Advertisement -

Latest Stories

- Advertisement -

UK News

- Advertisement -
- Advertisement -

Read the latest free supplements

Read the Town Crier, Le Rocher and a whole host of other subjects like mortgage advice, business, cycling, travel and property.