Bank of England signals no more rate cuts

The Bank of England is signalling the end of UK rate cuts in the UK. Last week, presenting the Inflation Report the Governor stated that ZIRP (a zero interest rate policy) was not a pre-condition for Quantatitive Easing or Credit Easing and went on to suggest that further reductions in base rates may be pointless.

Charles Bean talking to Britain’s farmers last week said "we don’t have to keep on cutting rates to provide a stimulus." So is this the end of rate cuts in the UK?

The minutes of the MPC meeting earlier this month provide the clearest indication that further rate cuts are unlikely.

“It seemed unlikely that the inflation target could be met solely by cutting Bank Rate. The short-  term market interest rates that Bank Rate sought to influence could not go far, if at all, below zero.  Furthermore, at very low rates of interest, the stimulus that a reduction in Bank Rate could provide was likely to be much reduced. Indeed, there might even be a point at which further cuts in Bank Rate could have an adverse impact on the economy”

The MPC voted with one exception for the 50 basis points reduction. Danny Blanchflower, the only bear in the wood, voted for a full 100 basis points cuts. Despite the cut, LIBOR remains above 2% creating a LIBOR spread of over 100 basis points.

Monetary Policy Minutes of the Monetary Policy Committee
Governor confirms ZIRP no pre requisite for QE