As the economy slows the Bank of England is preparing the groundwork for further cuts in interest rates. Gertjan Vlieghe, an external member of the Bank of England’s Monetary Policy Committee would vote for a cut even if the UK votes to remain the European Union.
Let’s not forget interest rates are at their lowest level in the 322 year history of the Bank of England. This is not normal and we should not lose sight that the economy is still in a state of emergency post Lehman brothers. Since the 2008 crash the Bank of England have slashed rates from a 5% to 0.5%. Surely if the economy had recovered central bankers would have had the confidence at some point to increase the rate of borrowing?
Vlieghe also suggested rates may have to go negative if the economy deteriorates further. Negative rates help those individuals, business and governments who have borrowed irresponsibly at the expense of those who have been prudent and accumulated capital.
In a fiat based monetary system credit has to continually expand or the system spins into a deflationary spiral. To achieve this aim traditionally central banks have lowered interests to encourage borrowing and thus expand the money supply. After 30 years of reducing rates to zero central bankers are running out of ammunition.