The bank cut interests rates to a record low and expanded quantitative easing
Voices from across the political spectrum have welcomed the Bank of England’s decision to cut interest rates to a record low of 0.25 per cent, and to expand quantitative easing to counter the economic effects of the Brexit vote.
‘Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly,’ the Monetary Policy Committee report states, pointing out that ‘recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year.’
Chancellor Philip Hammond has said that ‘it is right that monetary policy is used to support the economy through this period of adjustment.’
In a statement, he commented:
“I welcome the decision of the Monetary Policy Committee (MPC). The vote to leave the EU has created a period of uncertainty, which will be followed by a period of adjustment as the shape of our new relationship the EU becomes clear and the economy responds to that.”
Opposition parties also supported the bank’s decision, but warned the government against over-reliance on monetary policy, calling on Hammond to undertake more ambitious fiscal policy to stimulate demand.
Shadow Chancellor John McDonnell called on the chancellor ‘to step up and shoulder his share of responsibility for economic stability.’
“Britain cannot afford to repeat the mistakes of George Osborne’s failed approach. Britain is on hold waiting for Philip Hammond to tell us whether he will stick to his predecessor’s planned cuts to investment, and firms and households can’t wait until the autumn to find out. It’s essential that the monetary authorities are given all the tools they need but also that fiscal policy is allowed to work alongside monetary policy to guard against economic downturn. The more the Chancellor dithers, the greater the potential cost to the British economy.”
Labour leadership challenger, Owen Smith, also called for ‘radical fiscal policy to sit alongside interest rate cuts and greater QE.’
Stuart Hosie, Treasury spokesperson for the the SNP, also supported the MPC but challenged the government.
“The new Chancellor needs to be much more pro-active on fiscal policy – scrap austerity and deliver the economic stimulus that is needed.
“It is his job at the Treasury to grow the economy and boost productivity. He cannot keep subcontracting decisions to the Bank of England and monetary policy decisions – such as we have seen today – can only go so far.’’
Liberal Democrat Treasury spokesperson, Susan Kramer, took the more negative view that, while the bank was right in its decision, ‘we cannot pretend this isn’t a deeply worrying sign.’
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“The bank has now used the only major tool left in its shed. Over the coming years we are at risk of having to go into negative territory. We are at the whims of what comes next.
“It is crucial that we do not lock ourselves into a race to the bottom, with interest rate cuts, devalued Sterling, tax rates that would be better suited to a tax haven and hiring freezes across business – all to offset the costs that will fall on us if Brexit negotiations fail to secure access to the single market.
An economy based on these measures is not sustainable.”