Bank of England governor Mark Carney has warned monetary policy easing will be needed over the summer in a speech today aimed at reassuring markets.
Speaking in the Bank’s court room, Carney said a first assessment around easing would take place on 14 July with a full forecast outlined in the August inflation report.
Carney adds that if interest rates are too low the hit to bank profitability could reduce credit availability or increase its overall price.
He says: “I can assure you that in the coming months the Bank can be expected to take whatever action is needed to support growth subject to inflation being projected to return to the target over an appropriate horizon, and inflation expectations remaining well anchored.”
In the speech, Carney announced that the Bank will continue to offer indexed long-term repo operations – a market-wide sell-off of central bank reserves to give firms more liquidity – on a weekly basis until the end of the September 2016.
He explains: “This will provide additional flexibility in the bank’s provision of liquidity insurance over the coming months. These facilities provide an effective way for banks to manage their liquidity, with a competitive auction process, designed to encourage usage, but where at times some bids will go unfilled.”
Carney also spoke about the plan needed to address the economic challenges emerging from the Brexit fallout.
He explains: “A plan for the UK’s current challenges would include a comprehensive strategy for engaging with the EU and the rest of the world – including clarifying the UK’s future trading arrangements, calibrating its openness to migration, ensuring the continuity of capital flows, and confirming the appropriate regulatory framework for the UK financial system.”
“The impact of concrete progress towards these objectives would be amplified by an overarching, positive and animating narrative for growth in a post-Brexit world. To emerge from an uncertain world with confidence, people and businesses need a fixed point by which to navigate. Once identified, everyone can then play a role supporting the strategy to get us to our destination.”
Also speaking publicly today was FCA chairman John Griffith-Jones who called on banks to issue an industry-wide response to the EU referendum.
Speaking at an industry conference, Griffith-Jones said: “It is important for the UK that, at the appropriate moment, you are able to inform the government where your major opportunities and risks lie, along with other industries, as it forms its plans for the negotiation of our exit.”
Griffith-Jones said the FCA would not change any of its work in light of the referendum result.
He said: “This is important; we will not be thanked for taking our eye off the ball, particularly with our responsibilities for day-to-day regulation of the markets and their orderly operation.”