Britain’s banks would need at least six months to prepare for any cut in interest rates below zero, the Bank of England said as it cut its forecasts for economic recovery for 2021 and 2022.
The Bank said that GDP is expected to shrink by around 4% in the current first quarter, holding back Britain’s recovery from the coronavirus crisis, as a result of latest lockdown measures.
Growth for 2021 as a whole, the Bank forecasts will be just 5%, compared to a previously-predicted 7.25%.
It said it would ask banks to get ready for the possibility of negative rates, but that financial markets should not view sub-zero borrowing costs as a foregone conclusion.
The news came as the bank said that it would hold current interest rates at 0.1 per cent
“Nobody should take any signal from this,” Governor Andrew Bailey told a news conference.
“My message to the markets is you really should not try to read the future behaviour of the MPC from these decisions and these actions we’re taking on the toolbox.”
For 2022, the Bank predicts growth of 7.25%, up from a previously forecast 6.25%.
They also think the UK has avoided a so-called “double dip” recession.