Bank of England policymakers consider negative interest rates

Rights, Scams and Politics

Updated on 26 February 2013 | 26 Comments

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

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

Comments

Be the first to comment

Do you want to comment on this article? You need to be signed in for this feature

Copyright © lovemoney.com All rights reserved.

 

loveMONEY.com Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FCA) with Firm Reference Number (FRN): 479153.

loveMONEY.com is a company registered in England & Wales (Company Number: 7406028) with its registered address at First Floor Ridgeland House, 15 Carfax, Horsham, West Sussex, RH12 1DY, United Kingdom. loveMONEY.com Limited operates under the trading name of loveMONEY.com Financial Services Limited. We operate as a credit broker for consumer credit and do not lend directly. Our company maintains relationships with various affiliates and lenders, which we may promote within our editorial content in emails and on featured partner pages through affiliate links. Please note, that we may receive commission payments from some of the product and service providers featured on our website. In line with Consumer Duty regulations, we assess our partners to ensure they offer fair value, are transparent, and cater to the needs of all customers, including vulnerable groups. We continuously review our practices to ensure compliance with these standards. While we make every effort to ensure the accuracy and currency of our editorial content, users should independently verify information with their chosen product or service provider. This can be done by reviewing the product landing page information and the terms and conditions associated with the product. If you are uncertain whether a product is suitable, we strongly recommend seeking advice from a regulated independent financial advisor before applying for the products.