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Theresa May in surprise attack on Bank of England's interest rate actions

Published 05/10/2016

Theresa May's comments come after the Bank of England, pictured, cut interest rates to a new all-time low in August
Theresa May's comments come after the Bank of England, pictured, cut interest rates to a new all-time low in August

Theresa May said there had been "bad side effects" from the Bank of England's moves to slash interest rates and shore up the economy since the financial crisis.

In a surprise attack on the Bank's actions, Mrs May said people with assets had "got richer" while those without had suffered and savers had been left "poorer" since interest rates had been cut to historic lows.

The Prime Minister said the time had come for a new approach to support growth.

She said: "While monetary policy - with super-low interest rates and quantitative easing (QE) - provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects.

"People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer."

"A change has got to come. And we are going to deliver it," she added.

It comes after the Bank cut interest rates to a new all-time low of 0.25% in August and launched more quantitative easing (QE) as part of measures to limit the fall out from the Brexit vote.

Bank governor Mark Carney has previously stressed the central bank alone cannot drive the economy and said governments needed to take action for long-term growth.

But high profile think tank the Adam Smith Institute slammed Mrs May's comments on QE.

Sam Bowman, executive director of the Adam Smith Institute, said she was wrong to claim that QE had "made us worse off".

"The evidence suggests that without it the post-crisis recession would have been deeper and longer," he said.

"We call on the Prime Minister to abandon her ideological attachment to interventionist economic policies, look at the evidence, and accept that it tells us that markets, not the state, are the solution to our problems."

Kathleen Brooks, research director at City Index, said Mrs May's words helped provide some respite for the battered pound, which had earlier hit a new 31-year low against the US dollar amid concerns over a "hard Brexit".

She said: "Of course, the Bank of England is independent, so May's government should not be able to change policy.

"But her words could be enough to ease some of the downward pressure that has been building on the pound and could be enough to trigger a mini rally."

Mrs May also signalled it was too soon to end the era of austerity, confirming the Government would "continue to aim for a balanced budget".

She has previously scrapped former Chancellor George Osborne's target to turn the country's budget deficit into a surplus by 2020, but has not ditched aims to return the public finances into the black.

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