Mark Carney, the governor of the Bank of England, has hinted in his most recent communication on monetary policy that further cuts to the Bank of England Base Rate (BBR) may be possible.
Inflation target triggers letter to Osborne
In an open letter to Chancellor George Osborne, which was produced in accordance with the MPC’s requirement to write to Mr Osborne when inflation is below target, Mr Carney wrote that there is further scope for rate cuts now than immediately following the financial crisis, in part because the UK’s banking sector is bolstered by “substantially more capital”.
Bank of England base rate at record low since 2009
The Bank of England base rate, which influences both the cost of credit and the returns on savings, has been at a record low of 0.5% since 2009. Until late last year, the Bank of England’s Monetary Policy Committee was expected to increase the base rate in the near future; however, low inflation has caused the Bank and economists alike to revise this outlook.
Carney hints at more quantitive easing to fight defaltionary pressure
In order to hedge against potential deflationary pressures, Mr Carney suggested cutting the BBR “further towards zero”. He also suggested expanding the Bank’s asset purchase facility, also known as ‘quantitative easing’.
You can read the open letter in full on the Bank of England website.