Mark Carney signaled that the Bank of England ready to cut interest rates – or freeze plans to increase them in order to support jobs and growth if Britain will be plunged into chaotic British exit from the EU.
Outlining the options available to Threadneedle street in the UK is approaching to leave the European Union next year, the Bank’s Governor said that the Institute was ready to answer the quarter and month in the “other form”.
Lowering interest rates in an emergency measure immediately after the British exit from the EU voted almost two years ago, the Bank gradually returns to an increase in the cost of borrowing for the first time since the financial crisis. In recent weeks, Carney stressed the need to raise rates to curb inflation, which rose sharply after the referendum.
But emphasizing a smooth exit from the EU would leave in the Bank for its current policy of raising rates over the next several years from their current level of 0.5%, he said that the indiscriminate withdrawal of Britain from the EU “can put monetary policy on a different path”.
In a key speech to the society of professional economists in London on Thursday, he pointed to Central Bank actions taken immediately after the referendum, the EU as proof of their ability to support jobs and economic growth.
At the time, economists feared that a loss of confidence in the UK economy after the vote the UK out of the EU could lead to loss of jobs and a sharp drop in economic production.
“Observers know from our reputation that, in exceptional cases, we are willing to tolerate deviations of inflation from the target within a limited period of time,” he said.
The Bank’s rate-setting Committee, monetary policy is mandated to guide inflation to 2%, but also has the possibility to deviate from this course to support the economy in difficult times.
However, economists fear that the Bank will have little opportunity to support the economy by lowering 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 those exceptional circumstances, to bring inflation sustainably back to target while supporting jobs and activities in accordance with our powers.”