BoE eschews negative rates and holds steady

BANK of England policymakers held firm against any move towards negative interest rates today and opted instead to maintain the status quo.

They also decided not to pump additional cash into the economy through quantitative easing.

Some analysts had suggested the policymakers might consider introducing negative rates – where the Bank of England would charge for commercial deposits – in response to the downgrading of the UK’s credit rating.

The idea is it would act as a stimulus to lending as lenders would effectively be charged for holding money on deposit at the Bank.

Deputy governor Paul Tucker had hinted a reduction could be in mind when he addressed MPs at a Treasury select committee. While he said it would have been an extraordinary move, he hoped the suggestion would continue to remain an option.

Today’s decision by the MPC means the 0.5% rate has now been in place for four years. The Bank’s own data showed lending dropped by £2.7bn in the final quarter of last year and by 19% for the whole of 2012 compared with 2011.

However, whether the appetite for lending is there is also open to question as is the impact it will have on the Funding for Lending scheme.

Sir Philip Hampton, chairman of RBS, has denied banks are not lending and claimed that not enough firms are coming forward and seeking loans.