Negative interest rates: Warning as Bank of England measure could help ‘full recovery’ | Personal Finance | Finance


Negative interest rates are a measure which have not been used in Britain’s history, however, could help the economy. Such a move has been implemented elsewhere in countries such as Japan and Switzerland to weather financial storms, and questions are mounting as to whether negative rates could be useful in the UK. Earlier this year, the Bank of England made the unprecedented move of lowering its base rate to 0.1 percent, and it has remained the same ever since.

This has led some to believe rates could plummet even further, to subzero levels – which could impact many savers.

It also appears such a move could be backed by Bank of England insiders, as a policy maker has expressed the central bank may need negative rates to help economic recovery.

Gertjan Vlieghe, a Monetary Policy Committee (MPC) member, has said negative rates could provide the monetary stimulus to help aid a full recovery.

Speaking to Bloomberg, Mr Vlieghe analysed the effects of the ongoing COVID-19 pandemic on the current economic situation, alongside the development of a vaccine. 

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Yesterday, the Bank of England made an important decision as it relates to interest rates within the UK.

The central bank decided to keep its interest rates on hold at 0.1 percent, a rate which has been active since March 2020.

This, it said, was the “appropriate” course of action to take in the current circumstances.

The Monetary Policy Committee of which Mr Vlieghe is a member, voted unanimously to keep the official interest rate at this level.

While rates will stay the same, the Bank has said it will be ready to take “whatever additional action is necessary” in the future.

It said: “The outlook for the economy remains unusually uncertain.

“It depends on the evolution of the pandemic, and measures take to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.

“It will also depend on the responses of households, businesses and financial markets to these developments.”

The next base rate decision from the Bank of England is scheduled to occur on February 4, 2021.

With a new year, may come new challenges for the central bank to face, however, it is yet to be seen what action will be taken.

By then, the transition period is scheduled to end, meaning the UK will have fully left the European Union.

This, alongside developments to COVID-19 and the vaccine, are likely to have significant implications in terms of policy making in the future. 

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