Bank of England moves a step closer to negative rates

Linda J. Dodson

The Bank of England took another step towards controversial negative rates on Thursday amid rising Covid infections and a looming unemployment crisis.

The Bank’s Monetary Policy Committee unanimously voted to hold interest rates at their record low 0.1pc and kept the scale of its money printing programme unchanged at £745bn.

However, minutes of the meeting said the MPC had been briefed on the Bank’s plans “to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates”.

The Bank of England and the Prudential Regulation Authority “will begin structured engagement on the operational considerations” of a move likely to hit savers again in the final quarter, the minutes said. 

Its remarks fuelled expectations of further stimulus in November as local lockdowns spread.

Despite a slightly faster recovery from April’s nadir than the Bank expected, the UK economy is still 11.7pc below pre-Covid levels. Output in a slew of sectors such as airlines and restaurants remains depressed.

The Bank said: “The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year… There remains a risk of a more persistent period of elevated unemployment than in the central projection.”

Threadneedle Street has forecast unemployment peaking at 7.5pc in the wake of the crisis, which would mean a rise of more than 1m in the jobless total.

Figures showed the first signs of a rise in joblessness this week, while redundancies have seen their biggest surge since the financial crisis. More than 2.7m people are claiming Universal Credit.

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