Bank of England Ponders a Monumental Gamble
The BOE should only use negative rates as a last resort, and it should set out a road map of other measures it might use before them.
Food for thought.
Photo: Bloomberg
Should U.K. interest rates be taken negative? It would be a monumental gamble that might threaten the health of the country’s banking sector and its ability to manage its current account deficit.
Despite the risk, the Bank of England is exploring whether this option could be used if the economy fails to recover from the pandemic, or if more lockdowns are needed. You can see why it would look at this, but the messaging has caused more confusion than clarity. It would be better if BOE Governor Andrew Bailey stated his order of preferences for how the bank would respond to a sustained economic crisis. That would be proper forward guidance.