Negative interest rates: Bank of England governor says measure is ‘in the toolbox’


NEGATIVE interest rates have been speculated for a number of months now due to the impact of the COVID-19 crisis. And it appears the governor of the Bank of England has hinted at the measure potentially being introduced.

Negative interest rates have been used in other countries across the world with varying successes. The measure is designed to offer the economy a boost during difficult financial circumstances. This is because negative interest rates do not tend to encourage people to save, and therefore individuals are likely to spend, thus helping economic recovery.

And banks should be encouraged to lend more if negative interest rates were to take effect.

Although negative interest rates have been implemented in varying ways, the move is a momentous one to take.

And this would particularly be the case in the UK, as such a measure would be unprecedented.

However, Andrew Bailey, the Governor of the Bank of England has seemingly suggested the option is still on the table.

Mr Bailey has not ruled out taking such action if required to rescue the economy from the fallout of the lockdown crisis.

Speaking to the Treasury Select Committee, Mr Bailey discussed the recovery process currently underway.

And he suggested that negative interest rates were under consideration by the central bank.

He commented: “It’s in the box of tools – we’re not planning it at the moment.

“We’ve got no plans to use it imminently, but it is in the box.

“If it was the right thing to do, then the case for bringing it out of the box would be strong.”

Earlier in the year, Mr Bailey commented that he would not rule out negative interest rates as a “matter of principle”.

The Bank of England governor, who inherited the helm at the start of the crisis in March, has been forced to confront challenging financial circumstances brought about by the pandemic.

In March, the central bank took the decision to lower its base rate to a staggeringly low 0.1 percent.

This was the lowest base rate in the bank’s history but was done to protect the UK against the financial effects of COVID-19.

Since then, there has been speculation the bank could take the decision to lower the base rate even further.

However, the conflict remains about whether the policy could be advantageous or detrimental to the country.

Regardless, the impact of negative interest rates could be monumental for a number of sectors, including those looking for a loan.

Speaking to in August, Harjit Moore, CEO of Freeze Debt commented: “Anyone who is looking for a new loan or has the ability to do so, should definitely go for it, as it has never been so cheap.

“However, there are certain aspects to bear in mind. A person should consider whether they have job security, and not just take a loan for the sake of it.

“But although affordability is an issue, negative interest rates could work in the favour of many people, so it is definitely worth considering.”

Mr Bailey also warned the Treasury Select Committee that fear of the second wave of COVID-19 was holding the economy back.

He commented that “natural caution” was preventing the economy from bouncing back quickly.


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