Bank of England responds

Reply received from Bank of England to an email which I sent in via their web site, urging the Governor to take some action. This was just at the time of scenes of people queuing up outside Northern Bank brandches. Response below:

Dear Mr Phillimore

Thank you for your e-mail.

As you may know, the Bank has two core purposes - monetary stability and
financial stability.

Perhaps I can first explain the Bank's responsibilities regarding
monetary policy. Our task is to set interest rates to meet the
Government's inflation target of 2% (as measured by the 12-month
increase in the Consumer Prices Index). In setting the official Bank
interest rate, we have to judge the outlook for the economy and
inflation and decide what level of interest rates will ensure inflation
remains low and in line with the target of 2%. Our decisions involve
difficult judgements about the direction of the economy, the state of
overall demand and the pressure on prices. There is inevitable
uncertainty about the future. But what we are clear about is the need to
ensure that inflation stays low. Only by keeping inflation low can we
ultimately maintain the value of our money - in terms of what it will
buy - and avoid the cycles of high inflation, high interest rates and
recession which characterised previous decades.

The Bank's financial stability objective entails detecting and reducing
threats to the financial system as a whole. In pursuit of this objective
the Bank works closely with the FSA and HM Treasury under the terms of a
Memorandum of Understanding which formalises the responsibilities of
each institution. The turmoil in financial markets since the beginning
of August has increased demand for liquidity by the banking system,
leading to a rise in inter-bank rates. As a consequence effective
borrowing rates facing households and companies may also rise somewhat,
but it is too soon to tell how persistent and how large any change in
credit conditions for household and corporate borrowers will prove to
be. However, the MPC is continually monitoring these factors to
establish their likely effect upon consumer credit and, ultimately,
inflation. If the economy was to weaken more than we anticipate,
resulting in future inflation potentially falling below our 2% target,
then our likely policy response would be to reduce interest rates.

For further information you may like to refer to the Governor's recent
speech to the Northern Ireland Chamber of Commerce and Industry at
http://www.bankofengland.co.uk/publications/speeches/2007/speech324.pdf

Thank you again for your views.

Kind regards

Di Davies
Public Information & Enquiries Group
Bank of England
Tel: +44 (0)20 7601 4878
E-mail: enquiries@bankofengland.co.uk