Darling: Bank of England must 'do the right thing'

Thursday, 30 October 2008 2:49 PM

Alistair Darling has called on the Bank of England to support the government's objectives of supporting the economy by cutting interest rates.

While stating the Bank should be independent, the chancellor, in a round of interviews this morning, explained the inflation should now fall - hinting that interest rates could follow suit.

"If you look at its statutory remit the Bank of England has two things it has to do: one is to target the government's inflation target - and inflation I think will come back down especially with oil prices coming down," the chancellor told BBC Radio 4's Today programme.

"The second thing it has to do is to support the government's wider targets of economic stability."

He added: "The duties of the Bank of England enable it to do what is right.

"The Bank of England does have those powers."

Mr Darling also said the Bank should look at the wider economy.

Last night in a speech, Mr Darling again called on the Bank of England to look at the economy.

"Our monetary policy framework is. based on constrained discretion. Inflation will come back to its two per cent target - a credible commitment. But there is also 'discretion about the horizon over which inflation is brought back to target'," he said.

"In exercising this discretion, the MPC can support, in line with its statutory requirement, the government's wider economic objectives."

Last night David Blanchflower - a key member of the monetary policy committee (MPC) - called for greater cuts to interest rates and warned of a the current crisis could be "more significant than the 1929 crash".

Last night Mr Darling also stated a relaxation of fiscal rules was necessary in the face of an economic slowdown.

"When private activity slows, it is even more important to maintain wider public spending," he said.

"To increase borrowing in a downturn is sensible - to support people and business across the economy.

"It is right to put money back into the economy when the private sector can't."

Responding to Mr Darling's speech, George Osborne, embattled Tory shadow chancellor said: "The government now has no plan to bring the public finances under control, just a mounting overdraft that will have to be paid off by taxpayers.

"Alistair Darling's speech achieved the worst of both worlds. He scrapped the fiscal rules that Gordon Brown based his reputation on, but put absolutely nothing in their place."

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