Advertisement

UK set to see more extreme monetary policy

The Bank of England looks likely to cut interest rates below zero at the end of this year.

The UK is heading for negative interest rates, say Morgan Stanley analysts Jacob Nell and Bruna Skarica. Economic weakness is likely to prompt the Bank of England to slash rates below zero at the end of this year. While the top priority now is propping up the Treasury’s splurge through quantitative easing, the focus will shift to interest rates once government furlough schemes end in the autumn. It wouldn’t be a temporary measure either: the experience of other countries shows that negative interest rates can “persist for years”. 

Advertisement - Article continues below

Talk of a world in which savers pay for someone else to take their money moves us into “Alice in Wonderland territory”, as Ruth Sunderland points out in the Daily Mail. In practice, negative interest rates are unlikely to mean interest income for mortgage borrowers and deductions on balances in savings accounts. But they make for a more brittle banking system and stoke wealth inequality by making it harder for the poor to grow their cash savings and adding yet more liquidity to asset markets. 

“Ultra-extreme monetary policy” has wrought enough damage as it is, agrees Liam Halligan in The Daily Telegraph. How else to explain the absurdity of a stockmarket rally during the worst UK economic decline in 300 years? Launched in 2009 as a “£50bn, one-off emergency response”, the Bank of England’s QE programme is today worth £645bn. Loose monetary policy is “way past the point of doing any good”.

Advertisement
Advertisement

Recommended

Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
OBR: UK house prices could fall by 12% next year
House prices

OBR: UK house prices could fall by 12% next year

The Office for Budget Responsibility says UK house prices could fall by as much as 12% next year. John Stepek looks at how likely that is.
14 Jul 2020
We’re spending more than at any time since World War II – how will we pay it back?
UK Economy

We’re spending more than at any time since World War II – how will we pay it back?

With the UK spending vast sums on stimulus measures, this year’s budget deficit will be greater than at any time since World War II. The big question,…
14 Jul 2020
MMT: what is modern monetary theory and will it work?
Economy

MMT: what is modern monetary theory and will it work?

“Modern monetary theory” – or MMT – is all the rage among progressive thinkers, especially in the United States. What is it? And does it stand up to s…
14 Jul 2020

Most Popular

An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
Three ideas for Lloyds Bank's new boss
UK stockmarkets

Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.
12 Jul 2020
Why the moving average is my favourite charting tool
Sponsored

Why the moving average is my favourite charting tool

Traders and technical analysts use "moving averages" to iron out daily fluctuations and give a much clearer picture of a market's direction. Dominic …
13 Jul 2020