BOE steps up talks on negative rates amid uncertain outlook

[LONDON] The Bank of England will step up talks on negative interest rates as the economy enters a period of unusual uncertainty.

Policy makers, led by Governor Andrew Bailey voted unanimously to maintain their key interest rate at 0.1 per cent and asset purchase target unchanged at 745 billion pounds (S$1.3 trillion) on Thursday. But they also said they'll hold "structured engagament" with the Prudential Regulation Authority later this year on how subzero rates could be implemented.

Officials said that while recent data has been a little stronger than expected, they still think there is "a risk of a more persistent period of elevated unemployment than in the central projection." "The Committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit," the BOE said.

The UK is facing a resurgence in virus infections and restrictions, as well as fears unemployment could spike when government aid programmes are withdrawn next month. At the same time, Prime Minister Boris Johnson's threats to redraw his Brexit deal with the European Union could scupper any chance of a trade accord before the Dec 31 deadline, further boosting economic turmoil.

Economists predict the bond-buying programme will be boosted by 50 billion pounds in November, and investors have been betting on rate cuts next year.

Hours before the decision, the Federal Reserve and Bank of Japan both kept rates unchanged, with the Fed signaling US rates will stay near zero for at least three years. The BOE repeated it pledge not to tighten until UK inflation, currently at 0.2 per cent, is sustainably moving to its 2 per cent target.

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