Europe News

Bank of England 'flexible' on policy turnaround

With oil prices and global demand showing a dramatic dip in 2014, the U.K.'s central bank has moved to reassure investors that it could still use stimulus measures despite being on-track to normalize interest rates next year.

Speaking to U.K. lawmakers, Mark Carney, the governor of the Bank of England (BoE), said that it has "considerable flexibility" were it to become necessary to provide extra stimulus.

Carney added that there was a "host of unconventional measures" that could be deployed to battle any kind of falling inflation or deflation - when consumer prices start to fall.

Read MoreBank of England: Inflation likely to fall below 1%

Bank of England Governor Mark Carney
Dylan Martinez | WPA Pool | Getty Images

One of the main themes for 2014 has been the lack of demand in the global economy with growth outlooks continually having to be downgraded. In the euro zone, there has been a push for more credit easing, with the bloc fighting stagnant growth and inflation.

In early November, the BoE warned that U.K. price growth is likely to fall below 1 percent over the next six months amid "significant risks" to its inflation projections. It also added that price growth is then expected to rise gradually, returning to "around 2 percent" in three years' time.

Read MoreBritain's GDP growth slows in third quarter

Carney underlined this outlook on Tuesday morning to a parliamentary committee, but was questioned by lawmakers on the central bank's ability to make a dramatic turnaround if the global threat of deflation spread to the U.K. economy. He conceded that any hikes would come later than originally anticipated but believed that the bank's first move would be to raise rates and not lower them further.

He added that there was "no change in orientation" at the BoE, with Deputy Governor for Financial Stability Jon Cunliffe saying that there was no deflation scenario in its forecasts.

Many economists expect interest rates in the country to rise from historic lows in late 2015, pushing back initial forecasts made at the start of 2014. Some economists - including those from HSBC - believe the tightening could now not happen until early 2016.

Follow us on Twitter: @CNBCWorld