Bank of England governor Andrew Bailey has refused to rule out cutting interest rates below zero in response to the coronavirus economic crisis.
The Bank has already slashed rates to a record low of 0.1% as the pandemic drags Britain into what is expected to be the worst recession in living memory.
Mr Bailey told MPs it was now studying how effective that cut had been as well as “looking very carefully” at the experience of other countries where negative rates had been implemented.
On the prospect of negative rates, he said: “We do not rule things out as a matter of principle.
“That would be a foolish thing to do.
“But that doesn’t mean we rule things in either.”
The governor’s comments reinforce his position since the beginning of the crisis – which coincided with him taking over from predecessor Mark Carney – that “nothing is off the table”.
But speculation specifically about negative rates has been growing in recent days, as other top officials at Threadneedle Street have also left the door open to the policy.
Mr Bailey admitted that he had also been re-thinking his view on the idea, saying: “I have changed my position a bit.”
Lower interest rates are seen as tools to boost the economy because they make it cheaper for firms and households to borrow.
Giving evidence to the Commons Treasury select committee, Mr Bailey cautioned that there were arguments that this might be less effective when they are already near zero.
He added that communicating what a negative rates policy meant would be “absolutely critical” since it was one that “members of the public would find it quite challenging to understand”.
Mr Bailey told MPs the Bank was “looking very carefully at the experiences of those other central banks that have used negative rates, and a number of them are actually publishing quite interesting assessments at the moment”.
The Bank of Japan and the European Central Bank have both cut rates below zero.
Mr Bailey’s appearance before MPs came a day after official figures showed a record rise in unemployment claims in April as the coronavirus crisis took its toll on jobs.
Chancellor Rishi Sunak said that the country was facing a “severe recession the likes of which we haven’t seen”.
The Bank of England has outlined a scenario for GDP falling by 14% in 2020 – which would be the worst annual slump for more than 300 years.
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