King hints at cut in deposit rate at Bank
STERLING tumbled yesterday, after Bank of England governor Mervyn King said the Bank could cut the rate it pays on commercial bank deposits held at the central bank.
Currently, financial institutions are paid 0.5 per cent on deposits held at the Bank. But speaking at the Treasury select committee, King said he did not want reserves – which are being boosted by quantitative easing – to grow too much.
The pound fell as much as 0.9 per cent to 88.95p per euro, its weakest level since 18 May, and slid as much as 1.1 per cent against the dollar to $1.6403.
King also told the committee yesterday that signs of growth were returning to the economy, signalling an end to the recession.
“Following a fall in economic activity at the end of last year and the start of this, there are now signs that growth has resumed in the third quarter,” he said.
Meanwhile, King hit back at former Monetary Policy Committee (MPC) member David Blanchflower’s suggestion that he ruled with an “iron fist”, drowning out warnings of the impending financial crisis.
King said he disputed claims made by Blanchflower last week that the MPC had suffered from “groupthink” and had gone along with King’s wishes without dissent.
“You can decide whether I do or do not have this iron fist, but look at the voting record,” King said, adding that he had been outvoted several times.
Blanchflower was consistently more bearish than his MPC colleagues in the months leading up to the collapse of Lehman Brothers, repeatedly calling for rate cuts.
But King yesterday criticised Blanchflower’s decision to go public with his concerns, saying that it was “unwise and not sensible for someone on the committee to do that”.