Mark Carney Raising Interest Rates: “Oh no he isn’t” “Oh yes he is”

Mark Carney Raising Interest Rates: “Oh no he isn’t” “Oh yes he is”

As pantomime season approaches, and with Christmas round the corner, inflation should increase as Santa fervently embarks on his annual shopping spree for the children of Britain. However, in both September and October inflation was -0.1pc, and on closer inspection it is hard to imagine that it would increase substantially before Christmas. Thus, it seems that the Bank of England will not raise rates this year.

Quantitative Easing

Quantitative Easing

Loosening monetary policy could be said to help countries move out of a recession. Usually, the Central Bank would lower interest rates in order to stimulate consumer spending, as consumers would then have a greater incentive to borrow more money, and a disincentive to save their money. However, when nominal interest rates are almost at 0, and domestic demand fails to increase, unconventional measures may need to be used, in order to pull the economy out of the liquidity trap. In the wake of the recent Financial Crisis, the Bank of England’s unconventional weapon of choice was Quantitative Easing. This was instigated in order to increase liquidity and reduce long term interest rates, and so stimulate consumer spending because, as Mervyn King stated at the time, interest rates and fiscal stimulus did not increase consumer demand. Indeed, monetary policy would be much easier and quicker to implement than a fiscal stimulus. Did Quantitative Easing help the Bank meet its 2pc inflation target? Did it help reduce the impact of the financial crisis?