The Bank of England is considering the “extraordinary” idea of negative interest rates as one of a number of radical policies to help return the UK to growth.
Paul Tucker, deputy governor for financial stability, raised the possibility in front of MPs after saying the Bank could be doing more to help the economy, including measures to boost lending to small businesses.
Negative interest rates would mean high street lenders paying the central bank to place their money with it. The move would be intended to encourage more lending to businesses and households. But it could also lead to a reduction in the interest paid on individual savers’ accounts held with high street banks.
The Bank has considered cutting rates from their record low of 0.5pc in the past but decided against doing so for fear of bankrupting a number of smaller building societies. To get round the problem, the Bank is reviewing a possible change to its remit so it can set a separate interest rate specifically for excess deposits placed by financial institutions at the central bank.
This could have dramatic effect on mortgage repayments including the possibility of many people having no interest payments at all.
Property and Finance Specialists
