Bank of England Governor doesn’t rule out negative interest rates

THE Governor of the Bank of England Andrew Bailey appeared before the Treasury Select Committee via zoom to discuss the financial outlook for Britain and did not rule out the possibility of introducing negative interest rates.

Although borrowers from banks and credit cards haven’t any reflection in commercial interest rates charged, the current UK interest rate is just 0.1 per cent so it can hardly go any lower without becoming negative.

There are mixed views over the effectiveness of below zero interest rates (which Japan followed for several years due to low inflation) but proponents say that if the banks have to pay to keep money on deposit with the central bank then they will be more inclined to lend it out to businesses.

The Governor told MPs, “It’s in the box of tools, we’re not planning it at the moment, we’ve got no plans to use it imminently but it is in the box.”

The Bank wants to see inflation hit 2 per cent this year but with so many problems of shops and restaurants closing and industry cutting back prices are generally static or even dropping so some form of stimulus is needed.