BoE deputy governor hints at negative interest rates

Plans to reduce interest rates to below zero have been met with shock and disbelief, with critics describing such policies as “insane”.

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Earlier this week, Paul Tucker, a deputy governor at the Bank of England, said that negative interest rates should be considered to boost lending to businesses and households.

And now a fellow deputy governor, Charlie Bean, has said that “there is nothing to stop us” implementing sub-zero rates in a bid to kick start the economy.

Although he said there were no plans to do so immediately, the proposal was greeted with disbelief from savers and critics alike.

If the base rate did slip into the negatives, major banks would be obliged to pay the central Bank to hold their money, which would encourage them to increase lending, stimulating both business and house buying.

However, this would have an adverse knock-on effect on savers, with sub-zero interest rates driving the rates on savings accounts even lower. Savers have been struggling to build up a nest egg since the base rate was slashed to 0.5% in March 2009.

Mr Bean said: “There is nothing to stop us in principle having a negative rate paid on commercial bank reserves.”

He added: “Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case.”

The suggestion prompted furious response from critics. Simon Rose, from campaign group Save Our Savers, said: “Whether or not we get negative interest rates, the Bank of England is clearly determined to crush savers underfoot.

“Why is nobody sticking up for savers? Why are the Chancellor and the Bank of England going in the opposite direction? Plundering savings is a desperate short-term solution that will have appalling long-term consequences.”

Posted by: WarrenWilson Categories: Finance Tags: , 6 Comments

6 Responses to BoE deputy governor hints at negative interest rates

  1. avatar James Walker says:

    No wonder Britain is in trouble these two fools at the Bank of England who have probably never saved in their life, Bean and Tucker, well named, both ought to be given the sack.

  2. avatar Tim Bartlett says:

    Why not?
    The banks demand that we pay them fees for the privilege of looking after our money in current accounts (especially business current accounts) — why shouldn’t they pay the BofE (and indirectly, the taxpayer) for looking after their money?

    And as for whingeing savers: the thing that matters is not the headline rate on your savings accounts, but the difference between your savings rate and inflation. I’m sure a lot of us can remember when the bank base rate was well over 10%. Unfortunately, at the time, inflation around 20%. So you had to be getting 10% over base rate just to keep up with inflation.

    Nowadays, 2.5% over base rate is enough to keep pace with inflation, and anything more is a bonus.

    If inegative interest rates will help dig us all out of the s**t, I say go for it!

  3. avatar Rob Slack says:

    The worst thing would be economic stagnation and maybe collapse. If negative rates on reserves encourage lending, it may be a benefit.

  4. avatar Dorothie says:

    The banks make a lot of profit from savers money.

    I really don’t see why banks can’t offer a decent interest rate to savers and encourage them while at the same time offering lower interest rates to borrowers if it keeps industry and the housing market moving. Surely it’s just a reverse of what they normally do with a bit less profit for them.

  5. avatar david wilson says:

    Let them do it. Then I will withdraw everything I have and the banks will not have a bean of mine. I think some of these bankers do not care about anyone, only their fat pay cheques.

  6. avatar Lizzey says:

    I couldn’t help but wonder if Mr. Bean has been consulting with Teddy! Of course they can do what they want to, but selling the family silver can only be done once. House prices are now so high again they are way out of line with the average wage, everything is so expensive now, but hey no matter! to those who say interest rates can be zero. I remember black Wednesday, interest rates at 16% we had to learn a hard lesson and it was for the good of the country, the wealthy suffered too, but now as much as we are told and explained to that low or no interest rates are right, who for exactly, developers and shareholders no doubt. We have been hoping for an interest rate rise for so long to stop prices rising, but to no avail, instead you can print billions of pounds and keep confusing us all as to why and where it will come from. It may be more understandable if the national debt was low for all our suffering, with no treat on our little bit of savings but its not.