X

Mortgage & Property

New Insurance Professional

Family Office Bulletin

Mortgage Property

Insurance Professional

Family Office

Bank of England paves the way for negative rates

  • Banks put on six month standby for negative rates
  • The Bank of England says this isn’t a signal of future policy
  • It’s unlikely savers would see negative rates passed on, unless they’ve got lots of cash in the bank
  • £225 billion currently sits in accounts paying zero interest – expect that to balloon if rates turn negative
  • The Bank won’t know how the economy is really doing until Q4 2021 at the earliest

Laith Khalaf, financial analyst at AJ Bell:

“The Bank of England is asking the market to watch its feet and not its eyes, as it looks to add negative interest rates into its toolkit, but says this isn’t a signal of future policy. Commercial banks need at least six months to prepare for negative rates and the central bank has now put them on notice, potentially paving the way for negative interest rates from August. Irrespective of what the Bank of England says, it’s likely markets will take this as a negative sign for longer term UK interest rate policy, even if it is designed simply to cover all bases as the pandemic continues to elevate economic uncertainty.

“While the Banks’ numbers show things are going to get worse before they get better, the pace of the vaccine roll-out does provide cause for optimism. Whenever it comes, the gradual lifting of social restrictions will inevitably boost economic activity from a very low base. But after the initial euphoria of a release from lockdown, the Bank may have to loosen the taps of monetary policy once again, if it feels economic momentum is slipping.

“Negative interest rates are still not a done deal though. The default position for the Bank now is to sit on its hands, unless there is a clear and present need for more monetary stimulus. Until the dust of the pandemic has cleared and government support measures are withdrawn, it’s hard for the Bank, or anyone else for that matter, to determine what state the economy is really in. We know that the first quarter of this year will see an economic contraction and as things stand right now, the second and third quarters will see growth as the economy opens up. It won’t therefore be until the fourth quarter at the earliest that we get a view of what the post-pandemic economy properly looks like. This leaves the central bank playing a waiting game in 2021.

“Experience of negative rates in other countries suggests that even if rates turn negative, most banks wouldn’t charge high street customers to hold money in their accounts, mainly because you can always take cash out of the bank and stuff it in a mattress. Those with higher balances would be most at risk, because a bank account provides security that is hard to replicate without financial cost. Negative base rate would likely lead to an explosion in the number of bank accounts paying zero interest, which currently house around £225 billion of savers’ cash. While savers might not explicitly pay interest to their bank, it’s possible banks would introduce fees instead, something HSBC said it’s looking at in some markets.

“Whether we get negative rates or not, the outlook for cash savers is a continuation of rates at rock bottom levels. With inflation expected to rise this year, that’s really going to bite into the buying power of cash held in the bank.”

This Week’s Most Read

  • Sir Keir Starmer in pub brawl?

    Predictions of scuffles in pubs came true today, with a landlord being ejected from his own pub by interlopers. Sir Keir Starmer had been listening

  • Class of 2021 retirees at risk of running pension pots dry

    Two thirds (66%) of 2021 retirees risk not having the pension savings to sustain their planned retirement income, according to a new report launched today

  • Sir Keir Starmer, pubs and COVID – taking the piss, not taking a piss..

    We thought you weren’t allowed into pubs these days? Incredible scenes erupted today outside the Raven Pub in Bath, as Sir Keir Starmer was confronted

  • New financial advice service from Vanguard aimed at retirement savers

    Designed for investors saving for retirement, Vanguard Personal Financial Planning launches on the award-winning Vanguard UK Personal Investor platform – vanguardinvestor.co.uk/financial-advice. The service offers personalised

  • The Coming Decade for Climate Solutions

    Randeep Somel, Fund Manager, M&G Climate Solutions Fund, is finding reasons to be cheerful as he uncovers some of the powerful drivers of change which

  • Deepbridge achieves record EIS fundraising levels

      Record £29 million deployed across 37 growth companies Deepbridge attributes success to intermediary relationships and sector focus Venture capital investment manager Deepbridge Capital today

  • The Superbia Group commits to accountability and living its core values with the formation of a new independent ESG Advisory Board

    The Superbia Group has today signalled its intent to live its values by announcing the appointment of a new independent ESG Advisory Board. The new

  • A Positive Charge

    Ben Constable-Maxwell, Head of Impact Investing at M&G Investments, is one of the driving forces behind the move to integrate ESG, sustainability and impact investing

  • Advice firm highlights how growing reputation boosts referrals amid pandemic

    National financial advice firm, Tenet&You, which opened its new offices at Haddington in December last year, has reported an increase in new business since the

  • A SPAC-tacular surge

    Written by Christopher Butcher, Momentum Global Investment Management During a period of extreme volatility and a global pandemic, the initial public offering (IPO) market had

IFA Magazine

Keep updated on the most important financial events 

Make sure you are an informed

wealth professional..

Adblock Blocker

We have detected that you are using

adblocking plugin in your browser. 

IFA Magazine