Mark Carney hints at possible MPC decision to reduce Bank Base RateMake Text Bigger
In 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”.
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
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