The Bank of England has been Mentioning Negative Rates too Often Recently

Posted Thursday, October 22, 2020 by
Skerdian Meta • 2 min read

Yesterday we heard the vice president of the Bank of England mention negative rates, but the GBP held quite well. In fact, the GBP/USD surged around 200 pips higher yesterday, on the back of increased weakness of the USD. Today, we heard the BOE member Haldane making similar comments about negative rates, but he’s not pushing for the BOE to use them, so the GBP ignored his comments, but the GBP/USD pulled 50 pips lower, as the USD pushed higher. Although, if talks about negative rates keep coming, the GBP will turn bearish sooner or later.


Comments by BOE chief economist, Andy Haldane

  • Nothing new to say about negative rates
  • BOE is doing work on negative rates, which is not the same as being ready to use it
  • Monetary policy can provide more of a cushion to the crisis
  • But more of the heavy lifting has to be done by fiscal policy
The messages coming from the BOE on the negative interest rate policy (NIRP) is still confusing, as was evident from comments by MPC member Vlieghe yesterday. As much as Haldane wants to deflect and keep the market “guessing”, it seems like going down the NIRP path is inevitable for the BOE next year – or the year after, perhaps.
  • There is an open question as to whether voluntary or involuntary social distancing is holding back spending
  • The second virus wave in the US had little impact on total spending, and it may have implications as to what to expect in the UK
A bit more of an upbeat tone by Haldane, but this is little more than a presumption. As much as household spending has held up amid the virus crisis, the record drop in consumer credit suggests that the UK economy is not even close to firing on all cylinders.
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