Bank of England puts negative rates on the backburner

The Bank of England stepped back from a controversial move towards negative interest rates on Thursday after its review found that implementing the policy within six months “would attract increased operational risks”.

More than 160 banks and building societies responded to the Prudential Regulation Authority’s review on the feasibility of the policy, which was launched last autumn.

It found “any shorter implementation period could adversely impact some firms’ safety and soundness” due to the short-term fixes that would be needed for banks’ IT systems.

The PRA will ask banks to look at their readiness for negative rates after six months, although the Monetary Policy Committee voiced concerns that “such a request could be misconstrued as a signal that the MPC setting a negative Bank Rate was in prospect, or even imminent”.

“This was a signal that the Committee did not wish to send,” the minutes added.

The Bank held interest rates at the record low of 0.1pc, with quantitative easing unchanged at £895bn.

Five other central banks – Japan, Switzerland, Denmark and the European Central Bank – have used negative rates, although Sweden ended its experiment with the measure in 2019.