Bank of England Governor, Mervin King, made comments today to the House of Commons Treasury Committee in London, which followed the less than expected decline in inflation offsetting its positive effects from easing deflationary fears.
Darling said that emerging signs show that growth has resumed in the third quarter of this year, yet the sustainability and strength of the recovery is surrounded by heightened uncertainty which adds to the risks of volatile inflation rates which are likely to remain volatile next year and fluctuate around the 2% target, yet all in all risks remain to the downside.
Following a year of Lehman Brother’s failure the turmoil and the destruction to the economy has been violent not just in UK yet it its biggest and major trading partners. The damage to the financial sector has been strong yet policies taken have addressed the issues, though “most institutions around the world are focused on recuperation” which in role is remaining the supply of liquidity limited as they are cautious in lending to households and businesses especially as the economy remains fragile.
That was why King said the BoE are considering lowering the rate paid on reserves bank hold with the BoE in a step to encourage lending and increase the circulated money, where already the current rate is excessively low at 0.5%, yet the BoE is still maintaining the reserves needed to assure stability in the banking system, as by their quantitative easing methods, as with the 175 billion APF program the reserves are maintained; King added that though the program’s positive effects are seen unnecessary high reserves should not be seen and as well excessive easing is not warranted. He said that by the program in the past six months the bank purchased 147 billion pounds of assets. The discussion of the possibility for lower rates and further monetary easing instantly pressured sterling to slump further to the downside against the dollar.