The Bank of course retains the ability to relaunch the scheme as necessary and in light of that the MPC judges the effective lower bound to Bank Rate to be now close to but a little above 0%. The ECB’s targeted long-term refinancing operations (TLTROs), first launched in 2014, also built on the experience of the FLS, as part of the three-pronged easing strategy, which also included cuts in the ECB deposit rate into negative territory and the launch of asset-backed security and corporate bond purchase programs. The facility was initially launched at margin of 10bps over the ECB’s marginal lending rate, though over time the pricing was reduced and tied instead to the deposit rate. As with the FLS and TFS, higher interest rates for banks that are contracting lending provide an incentive to lend. As with the UK, the TLTRO provided an innovative way to reduce the effective lower bound. With the link to the ECB’s deposit rate the TLTRO provided a way for the ECB to take wholesale interest rates significantly below zero without counterproductive compression to margins in the banking sector (Chart 9).
This has created tensions between short-term output and inflation stabilisation in the UK that have not been evident in other major economic regions. Chart 1: Divine coincidence has continued in the euro area Great moderation  5  Inflation (%)  Financial crisis and after 4 3 8 2 -4  -3  -2  -1  0 1  1  2  3 4 Excess demand (%)  0 -1  3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  But not in the United Kingdom Great moderation  6  Inflation (%)  Financial crisis and after 4  Inflationary, with trade-off  Inflationary, no trade-off  2 -6  -5  -4  -3  -2  -1  0  1  2 3 4 Excess demand (%)  0 Disinflationary, no trade-off  Disinflationary, with trade-off -2  In these circumstances it has been critical for the Bank of England to pursue flexible inflation targeting.2 Since 2013, the MPC’s remit has explicitly recognised that there are circumstances in which bringing inflation back to target too quickly could cause undesirable volatility in output and employment. It directs the MPC to “promote understanding of the trade-offs inherent in setting monetary policy” including importantly “the horizon over which the Committee judges it appropriate to return inflation to target”. The MPC used this flexibility to support activity following the referendum in the wake of the large depreciation.