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The severity of Britain’s economic recession could force the Bank of England to increase its stimulus, according to one of the central bank’s top officials.
Ben Broadbent, deputy governor for monetary policy, said it was “quite possible” for officials to vote to expand the quantitative easing (QE) program to prevent the situation from worsening as companies remained closed and millions of workers were forced to stay. in their homes.
The Bank’s monetary policy committee voted in favor They kept interest rates at a record low of 0.1% last Thursday, cutting rates twice from 0.75% since the onset of the coronavirus pandemic. Officials also voted seven to two to reject a proposal for a £ 100 billion increase in the bank’s stimulus from £ 645 billion to £ 745 billion.
But a warning from the Bank that the British economy could shrink by 14% this year and that unemployment could more than double in the spring has fueled speculation that a further interest rate cut to implement early interest rates. UK refusals, or an impending QE surge.
Broadbent ruled out the probability of negative rates, before saying: “The committee is certainly prepared to do whatever it takes to fulfill our mandate with risks still to the downside. Yes, it is very possible that more monetary relaxation is needed at that time. “
Broadbent is known to believe that the collateral effects of negative interest rates undermine any potential benefits, especially by potentially discouraging street banks and building partnerships to avoid lending to businesses and households.
When a central bank adopts negative interest rates, they charge street banks to keep cash with them, instead of paying interest, forcing street banks to use the funds as loans for businesses and homes.
His comments were followed by a demand from Donald Trump that the US Federal Reserve. USA Introduce negative interest rates. Referring to the 19 countries in the eurozone, Trump tweeted: “As long as other countries receive the benefits of negative rates, the US should also accept the ‘GIFT’. Big numbers!
The White House has spent the past two years scolding the Federal Reserve for its refusal to copy the European Central Bank and lower interest rates to below zero. Many of the president’s supporters believe the economy would recover more quickly if borrowing costs were reduced.
Kenneth Rogoff, professor of economics at Harvard University, argued earlier this week that the dire situation facing the developed world due to this year’s deep recessions means that central banks must use all of their tools, including interest rates. negative interest.
Rogoff, a former chief economist at the International Monetary Fund, said: “Tragically, when the Federal Reserve carried out its review of policy instruments in 2019, the discussion on how to implement deep negative rates was withdrawn from the table, forcing the Federal Reserve pandemic.
Influential bank lobbyists hate negative rates, although they do not need to undermine bank profits if done correctly. The economic profession, mesmerized by the interesting counterintuitive results that emerge in economies where there really is a zero limit on interest rates, must share some of the blame. “
Broadbent also sought to dispel suggestions that a Bank of England-financed Treasury overdraft facility amounted to the central bank that directly financed public spending. He insisted that the purpose of the bond purchases was to satisfy the shortage of funds in the financial system and to achieve an inflation target of 2%.
“It is not surprising when you have a big impact on the economy, as is the case now, as was the case in 2009, that you see a decrease on the fiscal and monetary fronts,” he said. “That is the connection: both are responses to a weaker economy. It is not the case that one is an answer to the other. “
