It’s a fine thing that the Bank of England uses outside advisers when setting interest rates. Groupthink from Threadneedle Street’s lifers would not make for the best decisions.
But it’s worrying that the outsiders on the Monetary Policy Committee are pushing ever more forcefully for negative interest rates — the Through the Looking Glass world where you pay your bank to hold your deposits.
They say it would encourage the likes of Barclays and Lloyds to lend into the economy rather than pay to hold cash with the central bank. Likewise, they say it makes the public spend rather than save.
What’s more, they point out, it seems to have worked in Europe, where the European Central Bank, Denmark, Sweden and Switzerland have all had a go.
What is clear is that negative rates would be another harsh shock to a UK banking system already coping with Covid and Brexit.
Some in big banks say their systems are not ready to cope with negative rates. That goes right down to the level that our settlement systems might not be able to cope with a “minus” sign.
Practicalities aside, rather than encourage banks to lend more, surely the opposite would happen: they’d be lending at such low rates of return it wouldn’t be worth the candle.
Given the UK economy relies more on debt than those on the Continent, that’s a problem.
It would be wrong to do something so drastic when we still don’t really know how sick our economy is. Sure, it feels awful now, but we may get a chunky post-vaccine bounceback.
The Bank’s insiders should politely decline to follow the advice of their external colleagues.
Let’s try more QE before hitting the negative rates button. At least we know that can work.