Andrew Bailey, Governor of the Bank of England, poses for a photograph on his first day on duty at the Central Bank in the City of London, UK on Monday 16 March 2020.
Jason Alden | Bloomberg via Getty Images
Bank of England Governor Andrew Bailey told CNBC on Thursday that there are no plans to implement negative interest rates in the coming months, despite the UK central bank̵
His comments came soon after the BOE’s Monetary Policy Committee unanimously voted to keep benchmark interest rates at an all-time low of 0.1%.
Policy makers have also decided to leave the size of the central bank’s bond purchase program unchanged at £ 745 billion ($ 981 billion).
The pound rose 0.4% to reach a new five-month high of $ 1.3184 shortly after the announcement. Since then, the UK currency has reduced earnings.
When asked in an interview with CNBC’s Geoff Cutmore whether the bank will consider interest rates negative next year, Bailey replied, “No, I can’t tell you because I would never give you a judgment on what monetary policy will be. a year before getting there “.
“What I can tell you is that the other analysts are essentially right, in the sense of saying it’s in the toolbox. But there is currently no plan to get it out of the toolbox and put it into practice,” Bailey said.
A woman wearing a protective mask crosses the street in front of the Bank of England at what would normally be the morning rush hour in the City of London on 17 March 2020. The UK’s financial district is unusually quiet after the government requested yesterday people abstain from all travel and essential activities.
“We looked at the experience of other central banks,” he added, noting that many continental European central banks currently use negative interest rates or have done so previously.
“I think there is a close relationship between the effectiveness of negative interest rates and the structure of the banking system, particularly the amount of retail financing. And also, the point in the business cycle at which they have been used in different countries. “, Bailey continued.
“Looking at this and looking at our situation, it makes sense to say, look, we need all the tools in the box that we can get at the moment because obviously we’re in a locked-down position with interest rates as low as theirs,” Bailey said.
“I’d also like to warn anyone who thinks this means we’re going to get them out of the box and put them to work. That’s not what we’re discussing at the moment.”
“Too optimistic” BOE forecasts
The BOE said Thursday that the UK’s gross domestic product (GDP) would drop 20% in the second quarter compared to the last three months of last year. The Monetary Policy Committee’s updated central projection predicted that UK GDP would continue to recover beyond the short term, but warned that the economy was unlikely to break out of its pre-pandemic level until the end of 2021.
“He still seems too optimistic,” Simon French, chief economist at Panmure Gordon, told CNBC’s “Squawk Box Europe” Thursday.
If the BOE’s revised economic forecast is successful, he said, it would mark “the fastest recovery to pre-recession levels for 50 years.”
“A late 2021 return to production in the fourth quarter of 2019 is about a year and a half sooner than we have in our forecast,” French said. “I think the scarring on the UK labor market will be more significant, there will be a significant rotation of capital and labor towards new economic demand patterns and this will take time.”
The BOE said employment rates in the UK appear to have declined in the wake of the coronavirus pandemic, although this has been “greatly mitigated” by the extraordinary temporary support schemes imposed by the government.
Nonetheless, he warned of “considerable uncertainty” over the occupation as Downing Street prepares to end those same support measures.
“In the short term, the unemployment rate is expected to rise significantly,” the Bank said, expecting the rate to rise to around 7.5% by the end of the year, “in line with a material degree of spare capacity. “.