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Bank of England consider negative interest

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Bank England 'considers negative interest rates'

Bank of England deputy governor Paul Tucker has indicated that negative interest rates should be considered.

The UK's economy is still struggling to recover in the wake of the ongoing financial crisis - so it could be the case that the measures the Bank have taken so far are not adequate.

These include pumping more cash into the economy through the asset purchasing quantitative easing initiative.

While the value of the programme currently stands at £375 billion, at the last meeting of the Bank's Monetary Policy Committee, some members - including governor Sir Mervyn King - voted to expand it by a further £25 billion to £400 billion.

The Bank has also been maintaining the base rate of interest at its current record low of 0.5 per cent - although Mr Tucker's remarks would appear to suggest that negative interest is on the cards.

In practice, this would mean that the central bank charges other banks to hold their money, which could encourage them to lend out more of their funds.

This could be a realistic possibility, given the sluggish pace of recovery thus far.

Indeed, European economist at asset management platform Schroders Azad Zangana recently warned that the UK is on the verge of a triple-dip recession.

He added that it is unsurprising that Moody's elected to downgrade the country's credit rating as a result of this wider context.

Speaking to MPs on the Treasury Committee, Mr Tucker acknowledged the unusual nature of his remarks.

"This would be an extraordinary thing to do and it needs to be thought through carefully," he remarked, adding that it is one of several ideas that he has put forward for consideration.

"I hope we will think about whether there are constraints to setting negative interest rates," Mr Tucker told MPs.

Indeed, any discussion on the matter is likely to have to take into account the negative impact on savers.

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