England may at first look like an easy job. Launching its latest Inflation Report today, Mark Carney, the bank's governor, confirmed that inflation should be back on target at 2% by 2017. This suggests market expectations of a first rate rise in the middle of 2016 are roughly right. Yet two important messages in the report suggest that setting interest rates is a much harder task for the bank than it may first appear. One area of uncertainty is the scale and impact of the budget cuts that the new Conservative government, elected on May 7th, seeks to implement. The other is the bank's expectation that in the long run, rates will be lower than before the crisis as a result of a long-run stagnation in demand. The size and scale of the responses needed to guard against these risks are uncertain. 
Top of the list of challenges facing the bank, according to Mr Carney, is responding to fiscal policy. To meet its inflation target, the bank has to respond to cuts in government spending which would weaken demand, lower growth and drag down inflation if left unchecked. The problem is that nobody is sure exactly how much the new government will cut. The Tories have so far only set out the details of where £1.2 billion ($1.8 billion) of their plans to cut £12 billion from the welfare budget will come from, according to the Institute for Fiscal Studies, a think-tank. If the government cuts steeply, businesses and consumers will also have less to spend, and the bank would need to offset the total fall in demand by keeping rates low. The problem is that Mr Carney cannot tell how much austerity he needs to offset. The bank reckons that interest rates only have their full effect on the real economy after 18 months; how deep the government's cuts will bite over that period is as yet unclear.
The report also emphasised that its rates are likely to remain lower in the coming years than before the financial crisis. This is thanks to “persistent headwinds” buffeting the economy. Low rates may help raise growth by stimulating spending, partly because low rates encourage bank lending. But the headwinds Britain faces are serious. They include weak global demand for Britain's exports, the possibility of a renewed slowdown in Europe, increased costs in the financial sector, and the risks associated with the government's fiscal squeeze. But the bank predicts that these headwinds will still be blowing for a while. Currently, the market expect rates to remain below 2% as late as 2020.
Mr Carney would not be alone in thinking all this adds up to rough sailing for a long time. Larry Summers, a former American treasury secretary and presidential advisor, warned the International Monetary Fund in 2013 that the world could be facing “secular stagnation”—which leads to low demand and deflationary pressures in the long run. Mr Summers warned that negative interest rates many become necessary to avoid secular stagnation. Such a radical policy is frought with risks. But still, lower rates may become the new normal.