UK interest rates could go lower, says Bank of England governor
- Credit: PA
Interest rates could be cut further from the current level of 0.5% should low inflation persist, Bank of England governor Mark Carney said today.
Mr Carney said the Consumer Prices Index (CPI) measure of inflation was “more likely than not” to turn negative at some point in the spring.
Projections in the bank’s latest quarterly inflation report suggest that CPI will average at around zero in the second and third quarters this year before starting to climb towards the end of 2015.
Mr Carney said the current period of low inflation, boosting spending power, was positive for the economy. Latest official figures show it fell to 0.5% in December, equalling an all-time low.
But should it be more persistent than currently expected, the bank’s monetary policy committee (MPC) would need to provide “more support”.
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The governor said the bank could decide to expand its £375billion money printing policy, known as quantitative easing, or cut its interest rate further towards zero from its current level of 0.5%.
Mr Carney stressed however that low inflation was not the “main story” as the bank upgraded forecasts for wages and growth in the coming years, and predicted that some of the factors causing low inflation would fade, reiterating that the next change in monetary policy was likely to be a rise in interest rates.
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Mr Carney said: “The headlines today mask a stronger underlying dynamics which will determine UK output and inflation tomorrow.
“Growth in the global economy was a touch stronger last year than we had expected in November. And the outlook for the UK’s trading partners is virtually unchanged since our last forecast.”
He said that despite renewed headwinds there was expected to be continued modest global growth.
This reflected factors such as a fall in oil prices by half over the last six months and central bank stimulus - notably the 1.1trillion euro (£814bn) asset purchasing policy by the European Central Bank.
Mr Carney conceded that an acrimonious Greek exit from the eurozone would change the outlook for the UK, though he said the impact would not be as heavy as it would have been three years ago.