Bank of England governor prepared to respond in ‘whatever form it takes’
Mark Carney has signalled the Bank of England would be prepared to cut interest rates – or freeze plans to increase them – in order to support jobs and economic growth should Britain be plunged into a disorderly Brexit.
Outlining the options available to Threadneedle Street as the UK moves closer towards leaving the European Union from next year, the bank’s governor said the institution was ready to respond to Brexit in “whatever form it takes”.
Having lowered interest rates as an emergency measure immediately after the Brexit vote almost two years ago, the Bank has gradually returned to raising the cost of borrowing for the first time since the onset of the financial crisis. In recent weeks, Carney has stressed the need to raise rates to curb inflation, which has risen sharply since the referendum.
But while stressing a smooth exit from the EU would leave the Bank on its present course for raising rates over the next few years from their current level of 0.5%, he said a disorderly Brexit “could put monetary policy on a different path”.
In a key speech to the Society of Professional Economists in London on Thursday, he pointed to the central bank’s steps taken straight after the EU referendum as proof of its ability to support jobs and growth.
At that time, economists feared that a loss of confidence in the UK economy after the Brexit vote could have led to job losses and a sharp drop in economic output.
“Observers know from our track record that, in exceptional circumstances, we are willing to tolerate some deviation of inflation from target for a limited period of time,” he said.
The Bank’s rate-setting monetary policy committee has a mandate to steer inflation towards 2%, yet also has the ability to deviate from this course to support the economy through difficult periods.
However, economists fear the Bank would have little options open to support the economy through cutting interest rates.
However, Carney insisted “we have the tools we need”, adding: “We will be prudent, not passive. We will respond to any change in the outlook in these exceptional circumstances to bring inflation sustainably back to target while supporting jobs and activity, consistent with our remit.”