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Mark Carney: BoE could cut interest rates

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Bank of England governor Mark Carney says the central bank might cut interest rates to zero but will not drag rates into negative territory.

Speaking to the Treasury committee today, Carney said if the economy needed additional stimulus there were many things the bank could do, including cutting interest rates to zero, from the current 0.5 per cent rate, or buying more assets though QE.

Previously Carney said the Bank was firmly on a rate-rise agenda, rather than looking to cut rates further.

Insisting that the Bank could launch fresh stimulus measures, Carney said: “We could cut interest rates towards zero. We could engage in additional asset purchases, including a variety of assets.

“We could also provide a perspective where we could adjust our policy horizon. We could shorten our policy horizon over which we wanted to return inflation to target.”

However, Carney said the Bank will not be taking interest rates negative, as this measure has “serious” implications on financial services.

He said: “We have no intention, no interest in negative interest rates.

“We have other options and would take very seriously the impact of negative interest rates on financial services and building societies especially.

“The focus of our monetary stimulus is concentrated domestically; concentrating policy measures externally is far less productive than domestic monetary stimulus.”

Previously Bank of England chief economist Andy Haldane suggested there may be a need to move to negative interest rates. During a speech at the Portadown Chamber of Commerce in Northern Ireland, he said there may be a need to abolish cash too.

Speaking about future rate rises, Carney said the UK domestic economy is positive, but that must be balanced with disappointing signs from abroad: “We must weigh the two up and we’re not taking a policy decision today.”

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  1. How does he recon that? Maybe my economics are out of date, or I just don’t understand. But the pound is now at it’s lowest for seven years. Reduce rates and I thought that would weaken the pound further. Or put it another way, when your currency is weak, raise interest rates to make it more attractive.

    Perhaps I need to go back to school.

  2. over under sideways down, backwards forwards, square and ’round – just like the old Yardbirds song. Make up your mind for goodness sake.

  3. There is a whif of Animal Farm about this! Originally inflation was to be kept within a range of 2% with 1% latitude either side. Now it seems after years of inflation fighting we are trying to create inflation for fear of sliding into a Japanese style deflationary environment. The problem is the failure to raise interest rates when the economy gained traction and now it is likely to stall with limited wriggle room. A weaker currency only gives a short lived advantage as everyone seems to be prepared to weaken their currency in a race to the bottom. Gold is looking like an increasingly attractive asset to own or even platinum which is trading below gold at the moment.

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