Unit 4: Monetary policy solutions in 2013

Paul Tucker, The Deputy Governor of The Bank of England has stated in evidence to The House of Commons' Treasury Select Committee that negative interest rates should be considered as a monetary policy instrument to stimulate the UK's Economy. In their discussions with the MPs, other members of the Bank's MPC implied that they were not inflation-rate nutters, and that other means of stimulating or managing the economy were being considered.


The current base rate of 0.5% leaves little scope for the Bank of England to use conventional means to stimulate a weak economy.The Bank has used quantitative easing (QE), pumping billions into the economy. A policy using negative interest rates could penalise savers, and might mean that the Bank of England is charging banks to hold their money, this might encourage them to increase lending.

Given that the incoming Governor Mark Carney has called for increased flexibility in monetary policy, with a greater emphasis on growth rather than inflation, it might be worth watching how The Bank of England's monetary policy changes, and how savers, borrowers, banks and firms react.

The Telegraph's coverage.

http://www.telegraph.co.uk/finance/economics/9895068/Bank-of-England-mulls-negative-interest-rates.html

The Guardian's coverage.

http://www.guardian.co.uk/business/2013/feb/27/bank-of-england-negative-interest

Coverage in The Independent.

http://www.independent.co.uk/news/business/news/bank-of-england-mulls-negative-interest-rates-8512047.html

and here:

http://www.independent.co.uk/news/business/news/qa-so-what-is-a-negative-interest-rate-8512008.html

The Economist.

http://www.economist.com/news/finance-and-economics/21572215-rich-world-central-banks-explore-more-doveish-strategies-brave-new-words