BoE reaction: Will interest rates go negative?

first_imgFriday 18 September 2020 4:35 pm She said that reflected “a slightly stronger rebound into the third quarter”. Douglas also flagged that there was “no mention of the risks to growth into 2021, which is where some MPC members had expressed a lot more concern”. The Bank said its fast data had shown the UK’s economic recovery was stronger than it had predicted in August. “Consumption has continued to recover during the summer and is now at around its start-of-year level in aggregate,” it said. Here’s what economists and analysts made of the Bank’s latest meeting. Jacqui Douglas, macro strategist at TD Securities, said the statement was “more upbeat than we had expected”. The Bank gave little indication that it plans to boost stimulus in November. But many analysts predict it will increase its bond-buying target as demand built up during lockdown peters out. All nine members of the monetary policy committee (MPC) voted in favour of continuing this monetary policy. But analysts, investors and traders continued to hotly debate how the Bank will proceed in the coming months. The Bank of England held interest rates and bond-buying yesterday, but said coronavirus cases could derail the recovery (AFP via Getty Images) Also Read: Bank of England reaction: Will interest rates go negative? Andrew Wishart, UK economist at consultancy Capital Economics, expected quantitative easing (QE) to “remain the tool of choice” for months ahead. Under QE, the Bank creates money and buys government and corporate bonds to keep borrowing costs low. “That the BoE is merely beginning to consult on the implications of negative rates confirms this is not an active policy option in the near-term,” he said.  They also said the BoE will begin “structured engagement” with the Prudential Regulation Authority (PRA) on “policy considerations” in the fourth quarter. Wishart said he predicted “more than the consensus expects”. He said: “We’ve pencilled in an extra £250bn of QE over the course of the next year, with an instalment of £100bn in November.” whatsapp The Bank of England held interest rates and bond-buying yesterday, but said coronavirus cases could derail the recovery (AFP via Getty Images) The Bank of England held interest rates and bond-buying yesterday, but said coronavirus cases could derail the recovery (AFP via Getty Images) Also Read: Bank of England reaction: Will interest rates go negative? “The Bank will only start working out how to put negative rates into practice in the fourth quarter,” he said. “And even then it will remain concerned about their effectiveness when banks are absorbing loan losses.” Yet Nigel Green, founder and chief executive of De Vere Group, took the minutes more seriously. He said that personal financial strategies should be reviewed to ensure they are “negative interest rate ready”. Share John Abiona and Harry Robertson The Bank of England (BoE) held monetary policy steady yesterday for the second meeting in a row. Interest rates were left at 0.1 per cent and bond-buying at £745bn in a business-as-usual decision.center_img Eyes turn to the November meeting The Bank of England held interest rates and bond-buying yesterday, but said coronavirus cases could derail the recovery (AFP via Getty Images) Also Read: Bank of England reaction: Will interest rates go negative? Bank of England reaction: Will interest rates go negative? “This would have been unimaginable even a few months ago. But the shifts have been seismic this year.” Bank flags ‘unusually uncertain’ outlook Most of the talk after yesterday’s decision was about negative interest rates. The meeting’s minutes showed that the MPC discussed how they could be implemented, should the economy need them. whatsapp Pantheon Macroeconomics’ chief UK economist Samuel Tombs said: “Our view remains that the MPC will authorise a further £50bn of asset purchases before the end of this year, and then a further £50bn of purchases in the first quarter [of 2021].” However, chief UK economist at Oxford Economics Andrew Goodwin said, the “structured engagement” with the PRA was nothing more than a formality. 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The Bank was relatively upbeat about the economy, saying the recovery had been “a little stronger” than expected. However, it warned that coronavirus could knock it off course. Read more: Bank of England keeps policy on hold and flags solid recovery Show Comments ▼ Negative interest rates: to cut or not to cut? However, the Bank cautioned that the spread of Covid in the UK and Europe could knock the recovery off track. The pound slid yesterday after the meeting’s minutes showed that the Bank was taking the possibility of negative interest rates relatively seriously.last_img

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