Wednesday, the Bank of England Governor Mervyn King said the Monetary Policy Committee is certainly prepared to cut interest rates again if necessary to keep inflation at target. The central bank has an official target to keep inflation at 2%. King was speaking at a press conference held to release the quarterly inflation report of the central bank.
On November 6, the UK central bank reduced the bank rate by a bigger-than-expected 1.5 percentage points to 3% in a bid to alleviate the mounting pressures on economy.
The central bank has not cut the rate by more than 50 basis points since 1993. This is the lowest rate since 1955 and the single largest cut since the central bank gained independence in 1997. This is also the largest reduction since 1981, when the then benchmark minimum lending rate was cut to 12% from 14%.
According to the governor, facts justified the big change in the bank rate last week. He ruled out any political pressure on the bank to cut interest rates.
King said it was almost certain output would fall in the third and fourth quarters of this year. When questioned on the risk of deflation in the UK economy, he said it is very likely that the retail price inflation would go negative next year. The central bank chief pointed out that the latest projections did not show the consumer price inflation turning negative.
King did not find the fall in the sterling exchange rate surprising. However, he said he do not wish for a sharp fall in the sterling.
With regard to reforming the international monetary system, King hopes that the G20 meeting, to be held at Washington this weekend, would be the beginning of the process.
by RTTNews Staff Writer
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