Rolling coverage of the latest economic and financial news, as negative interest rate fears hit the pound
- Latest: Bank of England holds rates at 0.1%
- P&O extends cruise suspension amid Covid-19 crisis
- Experts predict more BoE stimulus by December
- Markets fall despite Fed’s low interest rate pledge
- John Lewis scraps bonus
As well as setting interest rates, Bank of England governor Andrew Bailey has written to chancellor Rishi Sunak to explain why inflation slumped to 0.2% last month, well below the 2% target.
Bailey blames the fall in economic activity due to Covid-19, low crude oil prices, weak demand due to slack in the labour market…..and the chancellor’s Eat Out To Help Out meal discount scheme.
CPI inflation rose to 1.0% in July, from 0.6% in June, but the temporary cut in VAT for hospitality, holiday accommodation and attractions, together with the Government’s Eat Out to Help Out scheme, were expected to lead to a material drop in inflation in August.
These effects have transpired.
The government’s commitment to the Bank of England’s operational independence and our flexible inflation targeting regime, with an operational target of 2% CPI inflation, remains absolute.”
Governor and Chancellor exchange letters on why inflation is so below target, could have exchanged tweets instead:
Bailey: basically, because you subsidised everyone’s meals.
Sunak: I knowhttps://t.co/bzb3UzpjDS
Possibly even an exchange of emojis, might have sufficed:
The Bank of England has also revealed that its monetary policy committee were briefed on its work on how negative interest rates might be introduced in the UK.
The minutes of this week’s meeting say:
The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years.
Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.