By Laurie Laird
LONDON (MaceNews) – A top Bank of England official suggested Friday that rate setters have yet to agree on the merits of implementing negative rates in the UK.
“Different members of the MPC will have a different take” on the efficacy of sub-zero interest rates, said Dave Ramsden, a member of the nine-person Monetary Policy Committee, addressing a virtual meeting of the Banks’ regional agents on Friday, alongside BoE Chief Economist Andy Haldane and Governor Andrew Bailey.
Ramsden also voiced concern that British banks might fail to pass negative rates through to depositors, given the potential pressure on bank profitability, particularly after UK institutions were forced to ring fence retail operations in the wake of the financial crisis.
His comments came a day after the BoE asked UK financial institutions to begin a six-month preparation period in the event the economy requires the additional stimulus of a rate cut from the current level of 0.1%.
However, a series of rather bullish comments from BoE officials raised questions over the MPC’s intention to implement negative rates over the medium term. Haldane — long one of the MPC’s more optimistic members — cited “upside risks” to the Bank’s forecasts, predicting a boom in consumer spending following a period of unintended personal saving during Covid lockdowns.
The Bank unveiled rosier-than-expected economic projections in minutes of the MPC meeting earlier this week, predicting that GDP expanded by 0.5% in the closing quarter of 2020, exceeding most private-sector forecasts and the performance of other developed economies. The U.S. contracted by a quarterly rate of 1.0% in the final three months of last year, while eurozone output slumped by 0.7%. Fourth quarter UK GDP data are due on 12 February.
The MPC also asked Bank staff to assess previous guidance on “the appropriate strategy for tightening monetary policy should that be required in the future,” according to minutes released on Thursday, although Haldane stressed such language “is not a policy signal.”
Haldane took a somewhat bullish tone toward inflation, predicting a “pretty swift” return to the Bank’s 2% target by the end of this year or the start of 2022. Inflation rose sharply in December, but only to an annual rate of 0.6%, the 17th-straight month below target.