Yesterday the Bank of England unanimously decided to keep the Bank Rate at 0.1% and the size of its asset purchase facility (APF) unchanged as expected. The committee saw overall slightly less adverse economic developments than it expected in last month’s update. However, risks were noted to remain skewed to the downside, with a warning the economy remains ‘unusually uncertain’. The Bank went on to reiterate the dovish guidance, saying ‘The Committee did not intend to tighten monetary policy until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably’.
Of note was disclosure that the Monetary Policy Committee (MPC) had been briefed on plans to explore the possibility of how negative interest rates be implemented effectively. The statement read ‘‘The MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates. The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4.’
As of now it appears that negative rates are still in the minds of the officials rather than the actual policy makers, however, the mere mention of negative rates will fuel market expectations, especially when added to the less than rosy economic outlook combined with the equally uncertain Brexit negotiations.