LONDON — People across Britain could see their savings hit or face new charges on their current accounts after a senior official at the Bank of England proposed the “extraordinary” measure of imposing negative interest rates on banks.
Deputy Governor Paul Tucker said the idea of charging high street banks to store money centrally, rather than paying them interest, should be explored as a way of easing the flow of credit to the stagnant economy.
“I hope we will think about whether there are constraints to setting negative interest rates,” he told MPs on the Treasury Select Committee. Although such a move has been discussed by the Bank of England in the past, Mr Tucker’s comments are the strongest indication yet that it is under serious consideration.
But the Bank appeared to go into retreat today following Tucker’s comments, with its deputy governor Charlie Bean describing talk of negative interest rates as “blue sky thinking”.
When asked about Tucker’s comments, Bean said this was just one idea among many that policymakers had considered and rejected in a regular review of more radical options.
“Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case,” he added.
It is hoped that the prospect of negative interest rates would encourage banks to lend more – but analysts warned that it would dent banks’ profitability and that the sector would probably respond by cutting interest rates on savings accounts, or even introducing current account charges.
“It’s very clear this would be expected to bring downward pressure on the rates savers can expect, pushing them down towards zero,” said Malcolm Barr of JP Morgan. more