UK corporates and their treasury departments, which have adjusted their investment strategies to contend with a Bank of England (BoE) base rate of only 0.5% for the past four years, may have to adjust to a policy of negative interest rates being implemented.
The possibility was floated by Paul Tucker, deputy governor of the BoE, who has revealed that officials at its monetary policy committee (MPC) are concerned that British banks are still not lending enough to small and medium-sized enterprises (SMEs)
Tucker told the government’s Treasury Select Committee on 26 February that MPC members have considered the possibility of lowering the base rate to sub-zero levels. “This is an idea that I have raised. This would be an extraordinary thing to do. It needs to be thought through very carefully,” he said.
However, Tucker also stressed that this does not mean he has dismissed the idea of extending the BoE’s programme of quantitative easing (QE) if this is needed in the future. “I remain open to doing more QE depending on the outlook for demand and inflation,” he said, adding that he had put up a number of ideas for consideration.
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