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Bank of England considers case for negative interest rates

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The Bank of England’s deputy governor Paul Tucker has raised the prospect of introducing negative interest rates to boost lending and support the UK economy.
Bank of England considers case for negative interest rates

Addressing MPs on the Treasury Select Committee, Tucker said the idea has been raised as a possible strategy to improve the economic recovery, the BBC reports.

“This would be an extraordinary thing to do and it needs to be thought through carefully,” he said. “I hope we will think about whether there are constraints to setting negative interest rates.”

The Bank rate has been at a historic low of 0.5% for close to four years, which has been detrimental to savers who have received paltry returns on their cash deposits.

Another option Tucker suggested was “possible extensions” to the Funding for Lending scheme, which offers up to £60bn of cheap funds to banks and building societies if they then lend the money to individuals and businesses.

Tucker’s comments come after a torrid few days for the UK, which was stripped of its AAA sovereign credit rating on Friday.

Ratings agency Moody’s became the first to downgrade the UK from AAA to Aa1, pointing to a growing government debt pile and expectations of a prolonged period of stagnant growth.

The move sent sterling to a two-year low against the dollar, while the government’s cost of borrowing crept upwards, heaping pressure on Chancellor George Osborne.

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