In a recent article I commented that the Bank of England (BoE) had put the possibility of ‘negative interest rates into their toolbox’, well it looks like they are about to come out. The Bank this week stated that it would “begin structured engagement” with regulators on how an unprecedented slide into sub-zero might work.
This is the strongest signal ever from the Bank and one that caused the pound to drop, UK government bonds to move higher and caught most analysts and traders by surprise.
Whilst this is still at consultation stage, the fact that it’s been disclosed publicly makes it seems they are sending a clear heads up message. Investors are already scrambling for yield where possible, a move into negative territory will additional monies moving across into real assets.
If rates really were to move into negative territory, commercial banks would have to pay the BoE to hold cash deposits with then and more than likely that would be passed onto every day savers. So potentially bad news for savers, but good news for anyone who has their mortgage linked to the BoE Base rate.
Photo by Robert Bye on Unsplash
