Bank of England official defends negative rates as recovery is ‘interrupted’

A new CBI survey has shown more than three -quarters of businesses want a deal to be agreed, with almost half of respondents saying that the impact of dealing with Covid-19 has hindered preparations for Brexit.

Rob Wood, chief UK economist at Bank of America, said: “I expect the Bank of England to cut rates to zero, not negative, because at best negative rates have a marginal stimulus effect but that’s the only ammunition left in the Bank’s cupboard – it’s not that negative rates have become a better policy tool since March.

“The question then is whether the current Covid-19 restrictions are sufficient to slow the spread. This will have an important effect on the outlook for growth and employment.”

Kallum Pickering, senior economist at Berenberg Bank, said: “The obvious risk is if you get a disorderly, hard exit from the single market. That would raise the chance of negative interest rates.”

Instead, Mr Pickering predicted an additional £100bn of QE in November, adding: “There are more merits for yield curve control in the UK than there are for negative interest rates.”

He added that the Chancellor’s announcements would barely cushion the expected autumn jobs crisis.

“At the margin, it might mean unemployment’s a bit lower in the fourth quarter of this year than it would have been otherwise – the spike in November will be a bit lower,” he said.