By Laurie Laird
LONDON (MaceNews) – The Bank of England is still considering the efficacy of sub-zero interest rates as it battles the economic shock of the coronavirus, a leading member of the bank’s rate-setting body said Tuesday.
“Negative interest rates is one possible tool to support demand going forward,” said Sir Jon Cunliffe, deputy governor for financial stability. “During extraordinary times … it makes sense to keep all [monetary policy] tools under review.”
Cunliffe’s comments came in response to questions posed after a webinar sponsored by the UK Investment Association.
The deputy governor cautioned that the bank’s monetary policy committee still needed to “think about the effectiveness” in jurisdictions that have introduced negative interest rates. He also expressed concern about ill effect of lower rates on the British banking sector. “We’re depending on the financial system to support the economy.”
He also echoed the concerns of Governor Andrew Bailey, who has called for enhanced communication from the central bank before any move to implement sub-zero interest rates. “We’d need to think about how we would communicate” negative borrowing terms, said Cunliffe. “Economic agents are confused about some of this.”
The Monetary Policy Committee next meets on 17 June, but most analysts expect the MPC to stand pat on monetary policy, with a number of members, including Cunliffe, expressing hope that the economy bottomed out last month. Survey evidence has suggested “some recover yover April and May, but it’s very early to say what the means for the third and fourth quarters,” said Cunliffe.
The bank’s chief economist, Andy Haldane, has expressed his desire to assess the effect of earlier rate cuts before considering further measures. The BoE has announced two emergency rate cuts since March, leaving its benchmark interest rate at a record-low 0.1%.
Cunliffe also voiced surprise that the recent impasse in trade talks between the UK and the European Union has caught business on the hop. “We’ve been telling” companies to prepare for a no-deal Brexit “for two years now.”
Talks last week between chief negotiators for both regions foundered, with the UK and the EU unable to agree on range of issues, including fishing allocations and rules on state aid to industry. UK Prime Minister Boris Johnson must ask for an extension to the current standstill agreement — which preserves Britain’s single-market privileges — by the end of June.