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BoE leaves policy unchanged but examines negative rates

By Sean Farrell

Date: Thursday 17 Sep 2020

BoE leaves policy unchanged but examines negative rates

(Sharecast News) - The Bank of England left monetary policy unchanged but said it would step up discussions about how to implement negative interest rates at a time of unusual economic uncertainty.
The BoE's monetary policy committee voted unanimously to leave borrowing costs at their record low of 0.1%. Ratesetters were also united in maintaining the target for bond purchases, or quantitative easing, at £745bn.

Economists had expected the BoE to leave policy unchanged to give the MPC time to take account of Brexit talks and a potential surge in unemployment as the government withdraws its support for jobs. Many economists expect the BoE to make its next move in November with an expansion of quantitative easing.

"The outlook for the economy remains unusually uncertain," the MPC said.

BoE Governor Andrew Bailey and other ratesetters have become more open to the idea of reducing interest rates below zero to support the economy during the Covid-19 crisis. Officials have said negative rates are an option and in the minutes the BoE said discussions with its regulatory arm were imminent.

"The MPC had been briefed on the Bank of England'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 minutes said. "The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4."

The pound fell 0.5% to $1.2905 and 0.4% to €1.0934 at 12:40 BST.

Neil Wilson, chief market analyst at, said: "Sterling dropped sharply ... after the Bank of England delivered a dovish statement which included overt references to introducing negative rates. It looks like Bailey is prepared to go big and fast if there is an unemployment crisis once the furlough scheme ends."

Bailey said recently the experience of the Covid-19 crisis suggested monetary policy was most effective when a central bank goes "big and fast" as the BoE did when it cut interest rates sharply early in the pandemic.

Business surveys have shown the economy picking up after the UK plunged into a deep recession in the second quarter of 2020. But analysts have warned the recovery appears fragile with Covid-19 infections rising, mass job losses looming and Brexit talks descending into acrimony.

"Recent domestic economic data have been a little stronger than the committee expected at the time of the August [inflation] Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out," the MPC minutes said. "The committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit."

Samuel Tombs, a UK specialist at Pantheon Macroeconomics, said the BoE's comment suggested negative rates could be deployed by spring 2021 but that this remained unlikely.

"Provided a no-deal Brexit is averted, however, we think that the MPC will stick exclusively to QE," Tombs said.


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