Bank of England cautious over cutting interest rates

Governor Mark Carney has described a potential move to cut interest rates as “extremely foolish”.

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By :  ,  Financial Analyst

The Bank of England is erring on the side of caution when it comes to lowering interest rates.

UK inflation fell to a record low of 0.3 per cent in January prompting suggestions that a lowering of interest rates could combat the slide. However, governor Mark Carney has reiterated his position on this decision and described a move of this ilk as being "extremely foolish" if it was to be carried out.

Mr Carney reinforced his standpoint that the reason for tumbling inflation was largely caused by a sharp fall in oil prices. He added that he expects inflation to keep falling to around zero and remain there for the rest of the year. The Bank of England governor believes that cutting interest rates to provide any form of stimulus would not be beneficial for the country.

Speaking at the House of Lords economic affairs committee, Mr Carney said: "The thing that would be extremely foolish would be to try to lean against this oil price fall today [and] try to provide extra stimulus to try to get inflation up at this point in time.

"The impact of that extra stimulus would happen well after the oil price fall had moved through the economy and we would just add unnecessary volatility to inflation. That would be foolish."

Faltering oil prices

The price of oil has been a major topic of conservation across the globe in recent months. Since June 2014, both Brent crude and US crude prices have halved with the former currently standing at $56.42 (£37.49) a barrel. Over the past year, there have been numerous meetings of the Organization of Petroleum Exporting Countries (Opec) to determine whether to cut production.

Members of the cartel have been reluctant to reduce output, which is meant to stimulate prices, and a rebound in prices has yet to be seen.

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