Bank of England won’t introduce negative interest rates, EY reports

The Bank of England is not expected to introduce negative interest rates at its next MPC meeting, according to EY’s ‘ITEM Club’.

Although negative interest rates appear off the table, a further £100bn of asset purchases are likely to be announced.

Previously at its September meeting, the bank opted to appear in ‘wait and see’ mode before making any announcements, but was willing to offer additional economic stimulus if needed.

With the country’s second lockdown imminent, it is inevitable that the Bank of England will downgrade its outlook for the UK economy compared to its August expectations, and put back its anticipated timing of when the economy will regain its Q4 2019 level (from the end of 2021).

Howard Archer, chief economic advisor to the EY ITEM Club, said: “The Bank of England looks poised to provide a spark for the UK economy on 5 November by enacting a further £100 billion of asset purchases, which would take the total up to £845bn.

“However, the EY ITEM Club expects the Bank will hold off from the more significant action of taking interest rates into negative territory and will keep them at 0.10%. The EY ‘ITEM Club expects both decisions to be the result of unanimous 9-0 Monetary Policy Committee (MPC) votes.”

He added: “In its September meeting, the MPC came across as being very much in ‘wait and see’ mode and willing to act if, and as soon as, necessary. This reflected their view that the outlook for the UK economy “remains unusually uncertain.”