The Bank of England is looking for possibilities of cutting interest rates to below zero, as Britain’s economy struggles with the coronavirus pandemic, high unemployment rate, and a possible new impact of Brexit. The central bank’s policymakers are considering the pros and cons of taking rates negative, like what the European Central Bank and the Bank of Japan already did.
Until recently, the central bank’s Monetary Policy Committee had been ruling out cutting rates to below zero, arguing that it would lead some banks to financial difficulties. However, the BoE on Thursday said that it was looking to overcome obstacles that prevent it from further cutting the benchmark rate from the current level of 0.1%. Following the announcement, pound sterling weakened by about 0.6% on the day against the USD to below $1.29.
In the second quarter of 2020, Britain suffered a 20% economic contraction, the deepest among the G7 nations. In its latest policy meeting, the BoE decided to maintain the current borrowing costs, in line with economists’ expectations. The MPC expects the economic recovery to continue to 7% below its end-2019 size in the July-September quarter, higher than its previous projection of 9% below its end-2019.
