Interest rates kept on hold at 0.1%
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(Video by Sky News)
The Bank of England took a step closer to introducing negative interest rates for the first time on Thursday, after it gave lenders six months to prepare for such a move.
Threadneedle Street's monetary policy committee (MPC) voted unanimously to keep the official interest rate at historically low levels while it agreed to set the deadline for banks to prepare themselves after policymakers said they were ready to make negative lending rates part of their toolkit.
According to the minutes of the MPC meeting, officials were split over asking lenders to put in place the measures needed to facilitate negative rates on loans and mortgages, with some fearing it would signal to investors that the central bank planned to move ahead in the next few months.
© Photograph: Antonio Olmos/The ObserverThe Bank of England expects GDP to fall by about 4% in the first quarter of 2021 Q1.
But the committee agreed that to include a cut in interest rates to below zero in the raft of measures available to policymakers, lenders would need to put in place the technical requirements allowing them to implement it at short notice.
There are fears that negative lending rates, which are expected to lower borrowing costs for households and businesses, would force high street banks and building societies to offer negative savings rates.
Savers would suffer a loss of income and pension funds, which also rely on deposit savings, would also be hit.
Officials said the balance of risks in the economy, mainly from new variants of Covid overwhelming the benefits of the current vaccination programme, meant it needed to keep rates low. The negative lending announcement came as MPC members voted unanimously to keep the official interest rate at the historically low level of 0.1%.
GDP is expected to fall by about 4% in 2021 Q1, in contrast to expectations of a rise in the November report.
However, the Bank expects growth to bounce back as the NHS vaccine programme takes effect and schools, universities and most businesses return to more normal levels of activity.
The Bank's quantitative easing bond-buying programme was left unchanged at £895bn after pumping an additional £150bn into the economy at the outset of the second lockdown in November.
Earlier this week, the chairman of the Building Societies Association said cutting the BoE's lending rate to below zero would force institutions to subsidise savings rates to keep them positive, leaving them no option but to recoup the costs from higher mortgage costs.
Mike Regnier, who is also the chief executive of Yorkshire building society, said introducing negative rates would hurt consumers and the wider economy.
© Xinhua News Agency.All Rights ReservedLONDON, Feb. 1, 2021 -- Photo taken on Feb. 1, 2021 shows a general view of the City of London, in London, Britain. The United Kingdom is formally applying to join the Comprehensive and Progressive Trans-Pacific Partnership CPTPP, with formal negotiations set to start this year, the British government said on Saturday. (Photo by Han Yan/Xinhua via Getty) (Xinhua/Han Yan via Getty Images)
"I fear this would have the opposite effect from supporting the economy, as rates would go up for borrowers as banks protect their margins," he said.
The BoE base rate, which was cut to 0.1% last March as the UK prepared to go into its first lockdown, is the cost to high street lenders of borrowing money from the central bank, which they must to offer mortgages and loans to households and businesses.