Sterling Weakens Amid Rate Cut Rumours

The outgoing Bank of England governor, Mark Carney, has inferred that further cuts in interest rates could be taken by the Bank to stimulate growth in the British economy. Inflation has been consistently below the bank’s 2 per cent target level, which has led to speculation as to whether the Bank could adopt “average inflation targeting”. This would require policymakers to compensate for low inflation today by targeting higher inflation in the future. This speculation of a rate cut has seen Sterling slide below $1.30 in currency exchange markets.   

Despite all this, he also warned that central banks are running low on methods to tackle potential downturns in the future. In an interview for The Financial Times, he stated: 

“It’s generally true that there’s much less ammunition for all the major central banks than they previously had and I’m of the opinion that this situation will persist for some time” 

Translated from “bankspeak” into plain English, this is just another way of saying central bankers have cornered themselves and are running out of ideas of how to get themselves out of the mess that they created. How will central banks respond if there is another downturn in the world economy? 

In relation to matters surrounding the United Kingdom’s withdrawal from the European Union, Mr Carney has stated that the City of London must not be forced to accept financial rules from the European Union. Negotiations are scheduled to begin later this year as to what the future trading relationship will be between London and Brussels, and it could be a bruising experience for the United Kingdom given the hardline stance from the European Commission.