Bank of England considering negative interest rates

Negative interest rates are being considered by the Bank of England to expand its policy toolkit and stave off lasting damage from the coronavirus recession, the governor has said. Read more: Bank of England considering negative interest rates

Bank of England considering negative interest rates

Negative interest rates are being considered by the Bank of England to expand its policy toolkit and stave off lasting damage from the coronavirus recession, the governor has said.

Andrew Bailey (pictured) stressed that there was no immediate plan to cut rates below zero but confirmation that he wants the option reflects the severity of the crisis. Negative rates would in theory mean banks charging people on their savings to encourage them to spend.

Rates are currently 0.1 per cent, which is considered the lowest they can go. In place of rate cuts, the Bank has been using quantitative easing and forward guidance to stimulate the economy. It is now reviewing a tool that Mr Bailey has previously described as implausible.

“We are doing the assessment of the case for bringing them in as a tool. Not necessarily to use but to put them in the tool box. It is not part of the current decision set,” the governor said in a call with the media after today’s policy decision.

“We are assessing the case for negative rates in this country. We haven’t ruled anything out. It is not a decision that is in any sense imminent. It is work we need to do. We are having to take that evidence [from overseas] and assess the pros and cons of it.

“Were we to decide that it should be in the decision there would be important questions about implementation and about communication.”

Other countries have used negative rates. Denmark has had them for eight years and some of the country’s banks have even experimented with negative-rate mortgages, which pay the borrower.

Small savers have tended not to be affected but banks have imposed monthly charges on corporate deposits and wealthy private client savings.

The Bank decided in 2009 that rates could not go below 0.5 per cent because doing so would backfire and drive up borrowing costs by squeezing bank and building society interest margins.

Lenders make money on deposits, by paying a lower rate than the central bank rate, as well as on loans. If they start losing money on their deposit books, the risk is they increase lending rates to make up the difference.

Negative rates also encourage savers to take their money in cash and put it in a safe. Policy innovations, including a central bank scheme that provides commercial lenders with cheap funding, have since meant that the minimum rate is now thought to be 0.1 per cent.

Even so, as recently as March, Mr Bailey said negative rates were not an option. “I should make clear that as things stand, I do not regard negative official interest rates as a plausible tool,” he told MPs. “Negative rates create the prospect of substitution into cash.”

The minutes to today’s meeting showed that some members of the nine-strong monetary policy committee want the Bank to be ready to act if there is a second spike in infections or if behaviour does not change despite lockdown.

“In an environment of heightened uncertainty, some members in this group also envisaged a role for monetary policy in seeking to mitigate the potential impact of more adverse economic scenarios, including those in which there were higher rates of Covid-19 infection going forward,” the minutes said.

Mr Bailey said: “Some members put more emphasis on [these concerns] and thought monetary policy could counteract that.”

Read more:
Bank of England considering negative interest rates

Source : Business Matters More   

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No Government help yet for small businesses as rent quarter day looms

Originally written by Timothy Adler on Small Business The Government is still ruling out extending the three-month moratorium on landlords winding up small businesses because of non-payment of rent due to Covid. And it is also holding fire on offering any kind of grant to make up the difference between what cash-starved small business tenants can afford, and what’s stipulated in lease agreements. No Government help yet for small businesses as rent quarter day looms

No Government help yet for small businesses as rent quarter day looms

Originally written by Timothy Adler on Small Business

The Government is still ruling out extending the three-month moratorium on landlords winding up small businesses because of non-payment of rent due to Covid.

And it is also holding fire on offering any kind of grant to make up the difference between what cash-starved small business tenants can afford, and what’s stipulated in lease agreements.

>See also:

Today, the British Independent Retailers Association (Bira) again refused to sign the draft code of conduct drawn up by Government, saying it wouldn’t make any difference to landlord behaviour.

Bira and other associations including UKHospitality are holding out for Government to extend the three-month moratorium on landlords repossessing units and issuing winding up orders.

Space furlough

They are also pushing for Government to cover gaps in rents, in what they call a “space furlough” scheme. The space furlough would have landlords agree rent reductions, tenants contribute, and the Government provide a grant to fill the gap.

However, draft guidance seen by the Telegraph, makes no mention of either solution to the coming battle between landlords and small business tenants as quarter day looms.

>See also:

Instead, warring tenants and landlords will be encouraged to use a third-party mediator to resolve disputes if neither side can agree.

  • Tenants should contribute as much as they can towards their rent. The draft code warns that inability to pay should not be linked to lockdown restrictions
  • Landlords should provide support to tenants that need it, including cutting rents, deferring payments and offering rent-free periods

Draft guidance is expected to be published shortly, given that the next quarter day for commercial rent payments falls on Wednesday, June 24.

Andrew Goodacre, chief executive of Bira, said: “Our fear is that landlords will have legal actioned ready to go in July and will pull the rug from under the retailer’s feet just when they are trying to re-establish their business.”

However, if landlords do issue winding up orders against small businesses for non-payment, it is difficult to see how that would advantage them, leaving them with an empty shop unit at a time when demand for commercial leases has cratered.

Further reading

 

No Government help yet for small businesses as rent quarter day looms

Source : UK Small Businesses More   

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