By Laurie Laird
LONDON (MaceNews) – Bank of England Governor Andrew Bailey surprised investors on Thursday, refusing to rule out negative interest rates in the U.K., even as he repeated his hopes of a robust economic recovery before year end.
Answering a question about sub-zero rates posed by a Financial Times journalist at a web event hosted by the newspaper, Bailey referred to the comments of his deputy. Earlier this week, Ben Broadbent told an audience of business leaders that “it is quite possible that more monetary easing will be needed.”
The bank has cut interest rates twice since the onset of the pandemic, leaving the base rate at a record low of 0.1%.
However, Bailey did stress that the bank’s monetary policy committee is not “contemplating negative rates at the moment.” Any move must follow unspecified structural changes to the financial system along with “careful communication” of such policy to investors and savers, he stressed.
Still, the governor presented an altogether cheerier outlook than his counterpart across the Atlantic, Federal Reserve Governor Jerome Powell. Government-sponsored job retention schemes make the current downturn “different from normal recessions … so the recovery will be different,” particularly a “more rapid restoration of employment.
On Wednesday, Powell suggested more stimulus would be needed, based on evidence that “deeper and longer recessions [can result in] lasting damage to the productive capacity of the economy.”
By contrast, Bailey continued to downplay any permanent scarring to the UK economy, repeating the MPC’s assertion that long-term damage of current downturn could be limited to “just over 1% of national income.” But he did acknowledge a “downside risk” to the Bank’s forecasts, particularly in the case of a prolonged shutdown that could effect a long-lasting change in consumer demand.