So how low are we going to go?
NEGATIVE INTEREST RATES AN OPTION
THE Bank of England yesterday moved a step closer to cutting interest rates to below zero for the first time in its 326-year history.
It is asking bank bosses to provide details of how they would cope if its base rate – already just 0.1 per cent – was reduced to zero or less.
Deputy governor Sam Woods wrote: “We recognise that a negative policy rate could have wider implications for your firm’s business and your customers.”
Woods stressed the letter did not mean the extreme measures would happen.
However, it is having to consider options as it tries to boost the coronavirus-hit economy.
A number of other economies around the world have already cut rates to below zero. If the UK followed suit, its impact on ordinary savers and borrowers would be limited.
Instead, lenders could be forced to pay a fee for funds held at the Bank of England above a certain amount.
Businesses and the very wealthy could also be penalised for hoarding cash.
That is very unlikely to be the case for most savers, although rates are already at next to nothing.
Variable-rate mortgages could fall but many have clauses saying interest payments will never fall below zero.
Banks have been given until November 12 to respond, a week after the Monetary Policy Committee next meets to decide whether to change its base rate.