Wednesday, May 12, 2021

Pound rallies as negative interest rates seen less likely – business live | Business

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The Bank of England took a step closer to introducing negative interest rates for the first time on Thursday, after it gave lenders six months to prepare for such a move.

Threadneedle Street’s monetary policy committee (MPC) voted unanimously to keep the official interest rate at historically low levels while it agreed to set the deadline for banks to prepare themselves after policymakers said they were ready to make negative lending rates part of their toolkit.

According to the minutes of the MPC meeting, officials were split over asking lenders to put in place the measures needed to facilitate negative rates on loans and mortgages, with some fearing it would signal to investors that the central bank planned to move ahead in the next few months.

But the committee agreed that to include a cut in interest rates to below zero in the raft of measures available to policymakers, lenders would need to put in place the technical requirements allowing them to implement it at short notice.

There are fears that negative lending rates, which are expected to lower borrowing costs for households and businesses, would force high street banks and building societies to offer negative savings rates.

Savers would suffer a loss of income and pension funds, which also rely on deposit savings, would also be hit.

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