Andrew Bailey, Governor of the Bank of England, poses for a photograph on his first day in office at the Central Bank 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 issue negative interest rates in the coming months, despite the “central position”
His comments came shortly after the BOE’s Monetary Policy Committee voted unanimously to keep reference rates at a low of 0.1%.
Policymakers also decided to leave the size of the central bank’s bond buying program unchanged at £ 745 billion ($ 981 billion).
Sterling climbed 0.4% to reach a new five-month high of $ 1.3184 shortly after the announcement. The British currency has since mated gains.
Asked during an interview with CNBC’s Geoff Cutmore whether the bank would consider negative interest rates next year, Bailey replied: “No, I can not give you that because I would never give you a verdict on what monetary policy will be a year ahead before we come. this. “
“What I can tell you is that other analysts are essentially right, in the sense that they say it’s in the toolbox. But there is no plan at the moment to take it out of the toolbox and put it to work,” Bailey said.
A woman wearing a protective face mask crosses the road in front of the Bank of England in what would normally be the morning rush hour in London on March 17, 2020. Britain’s financial district is unusually quiet after the government asked people to refrain from all but essential travel and activities yesterday.
“We have looked at the experience of other central banks,” he added, stressing that many central banks across Europe continue to use negative interest rates or have done so in the past.
“I think there is a close relationship between the effectiveness of negative interest rates and the structure of the banking system, especially the amount of retail finance. And also the point in the economic cycle where they have been used in different countries,” Bailey continued.
“If we look at it and look at our situation, it makes sense to say: Look, we need as many tools in the box as we can get at the moment because we are obviously in a limited position with interest rates as low as they are, Sa Bailey.
“I also warn anyone who thinks that means we are pulling them out of the box and putting them to work. That is not what we are discussing at the moment.”
BOE forecast “too optimistic”
The BOE said on Thursday that Britain’s gross domestic product (GDP) was expected to have fallen 20% in the second quarter compared to the last three months last year. The Monetary Policy Committee’s updated key projection was that Britain’s GDP would continue to recover in the near future, but it warned that the economy was likely to exceed its pre-pandemic level by the end of 2021.
“It still looks too optimistic for me,” Simon French, chief economist at Panmure Gordon, told CNBC’s “Squawk Box Europe” on Thursday.
If the BOE’s revised economic forecast materializes, he argued, it would mark “the fastest recovery to pre-recession levels in 50 years.”
“A return to 2021 to production in the fourth quarter of 2019 is about a year and a half earlier than we have done in our forecasts,” said French. “I believe that scarring in the UK labor market will be more significant, there will be a significant rotation of capital and labor to the new patterns of economic demand and that everything will take time.”
The BOE said the employment rate in the UK seemed to have fallen in the wake of the coronavirus pandemic, although this had been “significantly reduced” by the extraordinary temporary support schemes introduced by the government.
Nevertheless, it warned of “significant uncertainty” for employment as Downing Street prepares to end the same support measures.
“In the short term, unemployment is expected to increase significantly,” the bank said, predicting that it would climb to around 7.5% by the end of the year, “in line with significant reserve capacity.”