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Bank of England policymakers consider negative interest rates

Simon Ward
by Lovemoney Staff Simon Ward on 26 February 2013  |  Comments 26 comments

Deputy Governor Paul Tucker has said the "extraordinary" idea has been floated.

Bank of England policymakers consider negative interest rates

The Deputy Governor of the Bank of England, Paul Tucker, has said the central bank has considered introducing negative interest rates to help get the economy moving again.

Appearing before the Treasury Select Committee, he said: "This would be an extraordinary thing to do and it needs to be thought through carefully."

Lowering the Bank of England base rate to negative territory would mean banks would be charged for holding their funds at the central bank. At the moment, they earn interest on money deposited there.

The hope would be that this would force banks to start lending their reserves more widely.

If such a move was made, it would almost certainly reduce variable mortgage interest rates, as they are in part linked to the Bank of England rate, and potentially cut personal loan rates too.

But on the flipside it would also lead to further cuts in savings interest rates, which are already low, mainly due to the Funding For Lending scheme. This offers banks and building societies the opportunity to borrow money from the central bank at low interest rates.

What do you think of the idea? Vote in our poll below and have your say in the Comments section.

Negative interest rates were not the only idea the Bank of England policymakers discussed at their last Monetary Policy Committee meeting at the beginning of this month. They also voted on the quantitative easing programme, which pumps Bank money into the economy by buying up Government bonds or gilts. Six members voted in favour of not making further purchases, while three voted for a further £25 billion to be spent on asset purchasing.

The committee also considered buying assets other than gilts, and a possible extension to the Funding For Lending scheme.

More on the economy

Why base rate hasn't been cut to 0%

What the UK credit rating downgrade means for our money

Gilt market won't crash in 2013

Our mid-term review of the Government

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Comments (26)

  • DLZ
    Love rating 18
    DLZ said

    @Bank Manager: The mechanics appear sound - spend the reserves, buckle up, and, oh, pray there are no "unknown unknowns" around the corner.

    Report on 06 March 2013  |  Love thisLove  0 loves
  • DLZ
    Love rating 18
    DLZ said

    Or any "willfully unknowns" (look up "New Labour", "It's a new paradigm").

    Report on 14 May 2013  |  Love thisLove  0 loves

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