The British government will not put pressure on the Bank of England to cut interest rates but will be flexible with economic policy to help ease the impact of the credit crunch, Finance Minister Alistair Darling said.
Darling, speaking to BBC television on Sunday, said he was also ready to help any more British banks that get into trouble because of a financial crisis that economists say is driving Britain into its first recession since the early 1990s.
"I'm not going to be writing to the Bank of England to change its remit," Darling said, responding to a demand from a respected opposition politician that the government should tell the staunchly-independent central bank to slash borrowing costs.
The BoE, given the power to set interest rates shortly after the Labour Party was elected to government in 1997, is required to target inflation at 2 percent and, subject to that, support the government's wider economic policies.
Most analysts expect the BoE's Monetary Policy Committee to cut interest rates to 4.75 percent from 5 percent at its monthly meeting on Thursday, despite inflation running at more than twice the official target, because of fears over the economy. Some say borrowing costs will eventually need to fall below 3.5 percent to their lowest level in more than 50 years to prevent a deep and prolonged recession.
"We're on the cusp of a major economic disaster coming out of the financial disaster," Liberal Democrat economic spokesman Vincent Cable said. "A big cut (in interest rates) is going to have to happen and the Chancellor of the Exchequer (Darling) is going to have to clear the way in order for them to do it."
Darling, who has said it is right to let government borrowing rise in the economic downturn, said he would need to be flexible with the public finances to help families and businesses cope with high inflation and the credit crunch.
There has been speculation Darling could relax Labour's fiscal rules that limit public debt to a proportion of gross domestic product because the public finances are already stretched.