Mark Carney hints at possible MPC decision to reduce Bank Base Rate

by Neil Patterson

17:38 PM, 30th June 2016
About 2 years ago

Mark Carney hints at possible MPC decision to reduce Bank Base Rate

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Mark Carney hints at possible MPC decision to reduce Bank Base Rate

mark carneyIn a speech this afternoon at the Bank of England, Governor Mark Carney, confirmed that the Monetary Policy Commitee (MPC) may need to consider all monetary policy easing tools at its disposal following a “change in the economic winds”.mark carney

This means that it is possible the MPC could consider supporting the economy by either decreasing the Bank Base Rate and or increasing the level of Quantitative Easing (increasing the supply of money).

Forecast economic growth levels for next year have been decreased to 1.6%, but this will be closely monitored over the coming months.

The MPC is due to meet in July and August with a decision on the measures to be taken more likely in August.

The Bank of England needs to balance two competing factors. On the one hand you have increased inflationary pressure due to the decrease in the value of Sterling causing an increase in prices of imported products and services. On the other hand growth and employment risks due to the uncertainty shock of the Brexit vote.

Therefore the Bank needs to consider carefully the effects of a rate cut to stimulate the economy, risking increased inflation, and also that a reduction in the bank rate makes it more difficult for the Banking and finance industry to make a profit.

Mark Carney stressed that there are limits to what the Bank of England can do with Monetary policy to help the economy and that it will also need Fiscal policy decisions from the Government.

Mark Carney also defended his position against previous accusations of political bias saying that the forecasts of economic risks post a Brexit decision were supported by all 15 of the independent MPC and FPC members. Also that these predictions, and the preparations made for these risks, had dampened the economic shock to be less severe than it might have been. He asked the room if anyone now disagreed with any of his and his 15 independent colleagues predictions and no one did.

Over the course of the speech Stirling fell by 1% as a knee jerk reaction to a possible rate cut.

To read Mark Carney’s full speech click here

 



Comments

Neil Patterson

17:43 PM, 30th June 2016
About 2 years ago

At the moment there is such a vacuum of power that anything said by someone with influence will affect the markets instantly

Dr Rosalind Beck

18:29 PM, 30th June 2016
About 2 years ago

I'm wondering what will happen to the tracker rates on BTL loans - eg. many are 1.75% above base rate, making the interest rate payable 2.25%. If the bank rate hits 0%, would the tracker go to 1.75% and if it went to -0.25%, would it go to 1.5% for example? Does anyone know the answer to this?

On a more general note I spotted that he talked about the BoE basing its decisions on evidence - something he often repeats; and yet he has agreed with measures based on the idea that in a recession BTL landlords will sell up en masse, when the evidence is that they didn't. So he has introduced measures based on an assumption that is provably false. In my naive days (pre-Section 24) I thought that the Treasury and Bank of England were experts who knew what they were doing. That illusion is now dead.

Neil Patterson

18:34 PM, 30th June 2016
About 2 years ago

Hi Ros,

If Base rate fell to 0% then yes your tracker would go to 1.75%.

However I think a negative rate for lending is highly unlikely as it causes its own issues.

Mandy Thomson

12:11 PM, 1st July 2016
About 2 years ago

Just seen the following tweet by a financial consultant:

Any decision to cut interest rates from 0.5% will be made by 9-member monetary policy committee (MPC), next due to meet on 14 July.— Andrew Bedford (@andrewbedford63) July 1, 2016


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