Sir Mervyn King, Governor of the Bank of England has told MPs that he could not rule out further cuts to the UK’s base rate of interest, while outlining possible plans to force British banks to resume lending.
During an address to the Treasury Select Committee, Sir Mervyn spoke of the possibility of cutting the base rate even lower than 0.5%, which is already at a historic low where it has been since March 2009. He said that he ‘did not rule out’ the possibility of cutting the base rate to 0.25 per cent or even zero, stating that ‘We have nothing in principle against cutting bank rate further.’
Sir Mervyn expressed his sympathy for British savers, who have received ultra-low interest on their savings for more than 3 years, saying that: ‘I can understand why so many savers are concerned about the level of interest rates.’
When talking about the financial crisis, Sir Mervyn said that ‘When this crisis began in 2007/8, most people, including ourselves, did not believe we would still be right in the thick of it five years later.’
Many people were dismayed at his assessment of the country’s economic outlook, he warned that Britain still faced several years of economic hardship. ‘I don’t think we are yet halfway through,’ He said.
Pressure is growing for the Bank of England to find ways to stimulate the economy, which is in its second state of recession. David Miles, Professor of the Bank of England said that the outcome of actions such as cutting interest rates and quantitative easing had been ‘extremely disappointing’. He then defended the Bank’s efforts, stating that the situation could have been much worse. He said: ‘Without them, what has been a dreadful few years could have been a truly catastrophic few years.’
Image credit: William Warby