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| Negative interest rates idea floated by Bank's Paul Tucker | Negative interest rates idea floated by Bank's Paul Tucker |
| (35 minutes later) | |
| Bank of England deputy governor Paul Tucker has said negative interest rates should be considered. | Bank of England deputy governor Paul Tucker has said negative interest rates should be considered. |
| A negative interest rate would mean the central bank charges banks to hold their money and could encourage them to lend out more of their funds. | A negative interest rate would mean the central bank charges banks to hold their money and could encourage them to lend out more of their funds. |
| Speaking to MPs on the Treasury Committee, Mr Tucker said: "This would be an extraordinary thing to do and it needs to be thought through carefully." | Speaking to MPs on the Treasury Committee, Mr Tucker said: "This would be an extraordinary thing to do and it needs to be thought through carefully." |
| He said it was one of a number of ideas that he had put up for consideration. | He said it was one of a number of ideas that he had put up for consideration. |
| "I hope we will think about whether there are constraints to setting negative interest rates," Mr Tucker told MPs. | "I hope we will think about whether there are constraints to setting negative interest rates," Mr Tucker told MPs. |
| With interest rates at a record low, there is little scope for central banks to use conventional means to stimulate the UK's weak economy, which has dipped in and out of recession since the 2008 financial crisis. | With interest rates at a record low, there is little scope for central banks to use conventional means to stimulate the UK's weak economy, which has dipped in and out of recession since the 2008 financial crisis. |
| Negative interest rates? Sounds a bizarre notion and the Bank of England deputy governor Paul Tucker acknowledged it would be an "extraordinary" move. | Negative interest rates? Sounds a bizarre notion and the Bank of England deputy governor Paul Tucker acknowledged it would be an "extraordinary" move. |
| But it is clearly in the Bank's thinking even if not adopted at this stage. The Danish central bank has already gone down this route. The theory is that commercial banks are depositing too much cash in the vaults of the Bank of England. | But it is clearly in the Bank's thinking even if not adopted at this stage. The Danish central bank has already gone down this route. The theory is that commercial banks are depositing too much cash in the vaults of the Bank of England. |
| To encourage them to withdraw the money and lend it elsewhere they would not be paid interest and instead would be charged a fee (negative interest) for holding cash at the Bank of England. | To encourage them to withdraw the money and lend it elsewhere they would not be paid interest and instead would be charged a fee (negative interest) for holding cash at the Bank of England. |
| There would not be negative interest on High Street deposits but banks would almost certainly react by cutting savings rates and raising current account charges. The big risk is that any gain in lending by banks would be matched by losses for savers and damage to banks' profits. | There would not be negative interest on High Street deposits but banks would almost certainly react by cutting savings rates and raising current account charges. The big risk is that any gain in lending by banks would be matched by losses for savers and damage to banks' profits. |
| The Bank has resorted to so-called quantitative easing (QE), pumping billions into the economy. | The Bank has resorted to so-called quantitative easing (QE), pumping billions into the economy. |
| Minutes of the last meeting of the Bank's policy setting committee showed that the governor, Sir Mervyn King, was outvoted in calling to expand QE from its current level of £375bn. | Minutes of the last meeting of the Bank's policy setting committee showed that the governor, Sir Mervyn King, was outvoted in calling to expand QE from its current level of £375bn. |
| During that meeting other policy measures discussed included buying assets other than government bonds. It also considered reducing the Bank rate, which is currently 0.5%, and is the rate which directly influences mortgage and loan rates. | |
| In addition, the committee looked at reducing the marginal rate of interest on bank reserves held at the Bank to encourage them to lend more. When negative interest rates were introduced in Denmark, it was this rate which was cut below zero. | |
| The Bank of England minutes showed that the committee, "had noted drawbacks with each of these options in the past ; those drawbacks remained". | |
| "The committee would nevertheless continue to examine all of the policies potentially available to it." | "The committee would nevertheless continue to examine all of the policies potentially available to it." |
| In his evidence to MPs, Mr Tucker also suggested "possible extensions" to the Funding for Lending scheme that he termed "quite significant, in terms of lending to non-banks and via non-banks". | In his evidence to MPs, Mr Tucker also suggested "possible extensions" to the Funding for Lending scheme that he termed "quite significant, in terms of lending to non-banks and via non-banks". |
| In its first phase, the Bank's Funding for Lending scheme offers up to £60bn of cheap funds to banks and building societies if they then lend the money to individuals and businesses. | In its first phase, the Bank's Funding for Lending scheme offers up to £60bn of cheap funds to banks and building societies if they then lend the money to individuals and businesses. |
| Untested ideas | Untested ideas |
| Negative interest rates have been discussed by other countries. Negative rates would have a detrimental impact on savers, who have already seen the income from their savings fall since the financial crisis. | Negative interest rates have been discussed by other countries. Negative rates would have a detrimental impact on savers, who have already seen the income from their savings fall since the financial crisis. |
| In 2009, the Swedish central bank, the Riksbank, surprised many when it set a rate of -0.25%. The move below zero for the first time was seen as largely symbolic. | In 2009, the Swedish central bank, the Riksbank, surprised many when it set a rate of -0.25%. The move below zero for the first time was seen as largely symbolic. |
| That was on the deposit rate, the rate put on money left by commercial banks at the central bank, which it normally earns interest on. | That was on the deposit rate, the rate put on money left by commercial banks at the central bank, which it normally earns interest on. |
| Banks were, in effect, being charged for keeping money at the central bank rather than lending it out to consumers and businesses to boost consumer spending and growth. | Banks were, in effect, being charged for keeping money at the central bank rather than lending it out to consumers and businesses to boost consumer spending and growth. |
| In December, the Swiss bank Credit Suisse imposed negative rates on bank deposits to tame demand for the Swiss franc. | In December, the Swiss bank Credit Suisse imposed negative rates on bank deposits to tame demand for the Swiss franc. |