Bank of England Negative Interest Rate Consulting Results to Be Released This Week

Andrew Bailey, BOE Governor [Photo by Reuters]

[Asia Economy Reporter Byunghee Park] Bloomberg reported on the 1st (local time) that discussions surrounding the Bank of England (BOE) introducing negative interest rates are expected to heat up this week.

The report stated that the BOE sought opinions from market participants on the possibility of introducing negative interest rates to stimulate the economy and will disclose the results this week. Since its establishment in 1694, the BOE has never applied negative interest rates. Introducing negative interest rates would be an unprecedented event.

However, Bloomberg predicted that the likelihood of the BOE immediately adopting negative interest rates is low. The BOE will hold a monetary policy meeting on the 4th. In a Bloomberg survey, most economists expected the BOE to keep the current base rate at 0.1%. In fact, most economists responded that the BOE would maintain the base rate above 0.1% until mid-2023. Among the 14 survey participants, only one economist predicted that the BOE would introduce negative zero interest rates at some point.

Bloomberg also noted that the BOE's current priority policy for economic stimulus is its ?895 billion asset purchase program, and it is unlikely to lower the base rate immediately to stimulate the economy.

Bloomberg further analyzed that it is unclear whether the UK economy currently needs BOE's stimulus measures, as the UK economy performed better than expected even during the lockdown period at the end of last year. BOE Governor Andrew Bailey also mentioned that businesses are adapting to lockdown measures. There are also forecasts that a strong economic rebound will occur in the second quarter of this year if vaccination proceeds smoothly.

There are also considerable concerns that negative interest rates could ultimately damage financial markets in the long term.

Given the current situation, it is considered best if the BOE shows that it is paying attention to economic stimulus to the extent of consulting on negative interest rates.

Elizabeth Martins, Senior Economist at HSBC Holdings, said, "The BOE will not say that negative interest rates are immediately necessary. However, if it gives the impression that it completely rules out negative interest rates, it could create the impression that the BOE might raise interest rates, which could backfire."