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MPC member repeats suggestion interest rates could turn ‘negative’

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  • 20/02/2015
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MPC member repeats suggestion interest rates could turn ‘negative’
Monetary Policy Committee (MPC) member Ian McCafferty repeated Bank of England (BoE) governor Mark Carney's sentiment that the idea of a rate cut should never be dismissed yesterday.

Ian McCafferty, who was advocating a rate rise last year with other member Martin Weale before inflation tumbled, confirmed the rate setting committee considered ‘all eventualities’, speaking to the Evening Standard yesterday.

“Have we run out of ammunition? No, we haven’t,” said McCafferty.

The last rate cut to 0.5% was in March 2009.

On 12 February presenting the Inflation report, BoE governor Mark Carney said the bank has the ‘will, means and responsibility’ to take further measures including rate cutting if necessary. He could also change the pace of rate increases, cut the bank rate to zero and pursue further QE if risks materialise, he added.

With UK CPI inflation having hit a 14-year low in December, dropping to 0.5%, but the UK economy growing at a reasonable pace, the Governor pointed to two potential risks which could cause the Bank to act.

Firstly, lower oil prices could provide greater stimulus to real incomes and demand. On the other hand, the risks of disappointing global growth could make deflation more long-lasting than expected, he said.

Earlier this week, the minutes of the latest policy meeting revealed potential divisions over the future path of rates.

Despite a unanimous vote on a 0.5% hold and to maintain Quantitative Easing at £375bn, the minutes noted two members of the committee felt there could still be a case for an increase in bank rates later this year.

One member, however, saw loosening “as likely as tightening” given the UK’s falling headline inflation rate.

 

 

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