Bank ready to act if United Kingdom faces disorderly Brexit, Mark Carney says

Galtero Lara
May 26, 2018

Having lowered interest rates as an emergency measure immediately after the Brexit vote nearly 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.

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.

At that time, economists feared that a loss of confidence in the United Kingdom economy after the Brexit vote could have led to job losses and a sharp drop in economic output.

However, he added that if the transition wasn't smooth, the Bank's monetary policy committee (MPC) could be expected to act similarly to how it did after the European Union referendum result - when it cut interest rates from 0.5% to 0.25%, and electronically created an extra £60bn to buy assets through its quantitative easing programme.

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"To understand the MPC's potential response, businesses, households and market participants can draw on the committee's track record of managing the trade-off that emerged after the referendum, since exactly the same framework would apply".

"Although the exact policy response can not be predicted in advance, observers know from our track record that, in exceptional circumstances, we are both willing to tolerate some deviation of inflation from target for a limited period of time and that there are limits to that tolerance", he said.

Carney said the Bank would consider whether to temporarily ditch the inflation target to support jobs and business activity in the event of "exceptional circumstances".

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