Deputy Governor of the Bank of England Paul Tucker, appearing before the Treasury select committee yesterday mentioned the radical idea of negative interest rates. It seemed more of an idea, rather than the groundwork for future policy, but it highlighted the bank does have other options left to help the economy. The idea is based upon the notion, that banks are currently parking considerable sums on deposit with the central bank for safety, rather than lending to individuals and businesses. By charging banks to hold funds with the Bank of England, the banks would be “forced” to lend more.
The idea has been discounted by most analysts as it would also have a negative impact on savers, primarily the elderly, who borrow less and rely on savings for an income stream. The policy would also push some of the smaller building societies to the brink, who rely on deposits to fund their lending.
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