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| MPs to review Bank of England's low interest rates since crash | MPs to review Bank of England's low interest rates since crash |
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| The Bank of England’s policy of near zero interest rates since the 2008 financial crash is to come under scrutiny by MPs in a far-reaching probe that could lead to calls for changes to the central bank’s remit, it was announced on Thursday. | The Bank of England’s policy of near zero interest rates since the 2008 financial crash is to come under scrutiny by MPs in a far-reaching probe that could lead to calls for changes to the central bank’s remit, it was announced on Thursday. |
| The influential Treasury select committee said it would also examine the damage to the Bank’s reputation from attacks on governor Mark Carney by senior politicians. | The influential Treasury select committee said it would also examine the damage to the Bank’s reputation from attacks on governor Mark Carney by senior politicians. |
| The review comes after Theresa May’s comments at the Tory conference that low interest rates and the £435bn programme of purchasing government bonds, known as quantitative easing, had “bad side-effects”, sparking concerns that ministers wanted to bring the central bank back under Treasury control. | |
| May said she was concerned that “just managing” families were suffering from policies devised in Threadneedle Street that increased inequality. | May said she was concerned that “just managing” families were suffering from policies devised in Threadneedle Street that increased inequality. |
| Newspaper articles and comments that followed by former ministers and pro-Brexit campaigners Michael Gove, William Hague and Nigel Lawson appeared to be part of a co-ordinated assault on Carney and prompted the bank governor to say last month that politicians had embarked on a “massive blame-deflection exercise”. | Newspaper articles and comments that followed by former ministers and pro-Brexit campaigners Michael Gove, William Hague and Nigel Lawson appeared to be part of a co-ordinated assault on Carney and prompted the bank governor to say last month that politicians had embarked on a “massive blame-deflection exercise”. |
| Most economic forecasts predict that the UK’s slowing economy will force the Bank to stick with its current policies of rock-bottom rates for another year, angering powerful lobby groups of pensioners that have complained about receiving meagre returns on their savings. | |
| Andrew Tyrie, the Tory MP who chairs the committee, said he also wanted to investigate the “unintended consequences” of maintaining the bank’s base rate at 0.25% and how much it had increased the incentive for households to put extra money aside. | Andrew Tyrie, the Tory MP who chairs the committee, said he also wanted to investigate the “unintended consequences” of maintaining the bank’s base rate at 0.25% and how much it had increased the incentive for households to put extra money aside. |
| Seven years of government bond purchases by the bank, which amount to £435bn, will also be questioned by MPs. Tyrie said the committee wanted to consider the stimulating effect on the economy of extending the bond buying programme to corporate bonds. | Seven years of government bond purchases by the bank, which amount to £435bn, will also be questioned by MPs. Tyrie said the committee wanted to consider the stimulating effect on the economy of extending the bond buying programme to corporate bonds. |
| “Interest rates are stuck near zero, the Bank of England has used increasingly unconventional forms of quantitative easing, and inflation has been below the 2% target for three years,” he said. | “Interest rates are stuck near zero, the Bank of England has used increasingly unconventional forms of quantitative easing, and inflation has been below the 2% target for three years,” he said. |
| “The efficacy of monetary policy or otherwise, its unintended consequences, and its prospects, need careful examination.” | “The efficacy of monetary policy or otherwise, its unintended consequences, and its prospects, need careful examination.” |
| Tyrie said he was concerned about the series of attacks on the Bank and wanted to consider further safeguards to protect its independence | Tyrie said he was concerned about the series of attacks on the Bank and wanted to consider further safeguards to protect its independence |
| He said: “The Treasury committee will continue to act as a safeguard on the operational independence of the Bank. The Treasury indemnity, which underpins parts of the Bank’s monetary policy, could all too easily encourage the Treasury, or politicians, to put undue pressure on the Bank.” | He said: “The Treasury committee will continue to act as a safeguard on the operational independence of the Bank. The Treasury indemnity, which underpins parts of the Bank’s monetary policy, could all too easily encourage the Treasury, or politicians, to put undue pressure on the Bank.” |
| The review is likely to dismay Carney, who has assured Tyrie and MPs on the committee on several occasions that the monetary policy committee, which he chairs, has considered all the consequences of its actions and followed the only path open to it. | The review is likely to dismay Carney, who has assured Tyrie and MPs on the committee on several occasions that the monetary policy committee, which he chairs, has considered all the consequences of its actions and followed the only path open to it. |
| Some thinktanks urged Carney to raise interest rates in 2014 once the UK economy began to recover strongly from the banking crash. But a succession of shocks, including the recent Brexit vote result, have persuaded Carney and the nine-strong MPC to reject these calls and inject further funds to stimulate the economy. | Some thinktanks urged Carney to raise interest rates in 2014 once the UK economy began to recover strongly from the banking crash. But a succession of shocks, including the recent Brexit vote result, have persuaded Carney and the nine-strong MPC to reject these calls and inject further funds to stimulate the economy. |
| In August, following a panicky reaction to the Brexit vote by businesses and consumers, the Bank cut the base rate from 0.5% and added another £60bn to its quantitative easing programme. | In August, following a panicky reaction to the Brexit vote by businesses and consumers, the Bank cut the base rate from 0.5% and added another £60bn to its quantitative easing programme. |
| Threadneedle Street has come under fire from pensioner groups and savers who argue that it has favoured borrowers over savers by keeping interest rates low. | Threadneedle Street has come under fire from pensioner groups and savers who argue that it has favoured borrowers over savers by keeping interest rates low. |
| The committee said it wants to test how much savers have found themselves pumping even greater funds into their pensions and savings plans to make up for the lost interest, possibly depressing consumer spending and business investment as a result. | The committee said it wants to test how much savers have found themselves pumping even greater funds into their pensions and savings plans to make up for the lost interest, possibly depressing consumer spending and business investment as a result. |
| Deputy governor Ben Broadbent said the bank’s analysis showed that while savers had experienced lower interest rates since 2008, the value of their assets had been protected by the bank’s policies. | Deputy governor Ben Broadbent said the bank’s analysis showed that while savers had experienced lower interest rates since 2008, the value of their assets had been protected by the bank’s policies. |
| Broadbent said a long spell of ultra-low interest rates had not caused a rise in inequality in the UK, explaining in his speech that, given most income came from wages and not assets, low rates had not encouraged a rise in income inequality. Furthermore, in the case of assets, there was little effect on inequality from loose monetary policy, he said. | |