The Bank of England has told high street banks they have six months to prepare for negative interest rates. The news comes as the UK economy is predicted to bounce back strongly due to the fast-moving vaccination programme is set to inspire consumer confidence.
Andrew Bailey, the governor of the Bank of England, described the vaccine rollout as “excellent news” that would speed up a return to normal life.
He said: “We do think that that is going to support a sustained recovery throughout the rest of the year.
The Bank of England has kept interest rates at a record low – 0.1 percent – since March last year.
The Bank said: “While the committee was clear that it did not wish to send any signal that it intended to set a negative bank rate at some point in the future, on balance it concluded overall that it would be appropriate to start the preparations to provide the capability to do so if necessary in the future.”
However, any drop is likely to be limited by the bank’s own terms and conditions, making it unlikely there will be any negative rates on your mortgage or other borrowing.
Negative interest rates will spell extra misery for those attempting to save.
Rates on savings accounts have tanked since the start of the pandemic, with even Government-backed scheme having slashed returns.
A negative rate means more accounts will be paying absolutely nothing on what’s in the account, making it harder for those attempting to save.
It could also mean that banks begin to consider fees for current accounts.
HSBC has already said that low interest rates could lead to it introducing fees on its accounts.
Sarah Coles, personal finance analyst, Hargreaves Lansdown, told iNews: “The Bank of England has asked banks to get ready for negative interest rates, which will have struck fear into the hearts of millions of cautious savers.
“They’re already suffering truly dire returns from high street banks, so the thought of having to pay a bank to hold their savings is unbearable. Fortunately, it’s also unlikely.
“The Bank was at pains to stress in the meeting that negative rates might never happen.
“The more that inflation rises closer to the two percent target, the less likely negative rates become, and the Bank is expecting inflation to kick in during the first half of 2021.”