Negative interest rates: When will the BoE decision occur? Full details on what to expect | Personal Finance | Finance


Negative interest rates have been on the minds of savers and experts alike for some time now, as the Bank of England (BoE) has kept the base rate at 0.1 percent in the face of economic uncertainty. In mid-2020, Andrew Bailey, the Governor of the central bank, detailed there were not any plans to deploy such a measure but there have been mixed messages issued since then.

When pushed on whether negative rates would be introduced by CNBC he detailed he couldn’t confirm ahead of time but acknowledged the measure was in the “toolbox” should it be necessary.

More recently in February, the Bank of England’s Monetary Policy Committee wrote to banks to gauge their preparedness for the possibility of rates turning negative.

The BoE regularly reviews the base rates and the next decision on it will occur on May 6, just over two weeks away.

While it is not possible to predict the BoEs decisions ahead of time, its most recent Financial Policy Summary and Record, published in March, highlighted that the central bank is committed to supporting the economy where possible.

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As it detailed in it’s outlook for financial stability: “UK households and businesses have needed support from the financial system to weather the economic disruption associated with Covid-19 (Covid). The financial system has so far been able to provide that support, reflecting the resilience that has been built up since the global financial crisis, and the extraordinary policy responses of the UK authorities.

“The vaccination programme in the United Kingdom has proceeded at a rapid pace and plans for the easing of restrictions on activity have been announced.

“Nevertheless, households and businesses will need the continued support of the financial system. Businesses, including many small and medium-sized enterprises, still need to finance cash-flow deficits this year, even as the economy recovers. And it will be important for lenders to work flexibly with household borrowers as payment deferral schemes unwind.

“The banking system has the capacity to continue to provide that support, even if economic outcomes are considerably worse than currently expected. This reflects the build-up of substantial buffers of capital since the global financial crisis.

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“Major UK banks’ and building societies’ (banks’) aggregate Common Equity Tier one capital ratio increased to 16.2 percent at end-December. Cutting support to avoid the use of capital buffers would be costly for the wider economy and consequently for banks themselves.

“As Government-backed lending guarantee schemes are scaled back, it is in banks’ collective UK households and businesses have needed support from the financial system to weather the economic disruption associated with Covid-19 (Covid).

“The financial system has so far been able to provide that support, reflecting the resilience that has been built up since the global financial crisis, and the extraordinary policy responses of the UK authorities.

“The vaccination programme in the United Kingdom has proceeded at a rapid pace and plans for the easing of restrictions on activity have been announced. Nevertheless, households and businesses will need the continued support of the financial system.”

The BoE noted: “Our job is to make sure the financial system functions effectively so that banks and financial markets can continue to support households and businesses in the UK in good times and in bad.”

This hints at the prospect of rates being kept at their current lows.

However, in late 2020 Giles Coghlan, the Chief Currency Analyst at HYCM, shared that he believed the introduction of negative rates is an inevitability.

He explained: “It is not so much a question of ‘if’ negative interest rates will be announced, but more a case of ‘when’. The Bank of England has been dropping hints of rates entering the red to help the economy overcome the hurdles posed by COVID-19.”

Giles detailed negative rates were looking “more likely” in the early months of 2021.

Savers will struggle to find interest rates above one percent on any financial product at the moment.

Indeed, recent analysis from Moneyfacts showed the average “no notice” savings rate was just over 0.15 percent on April 16.

This is compared to January 2020, just before the coronavirus issue emerged, where average rates were above 0.5 percent.





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