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U.K. Banks Ready for Negative Rates if Recovery Crumbles

U.K. Banks Prepared for Negative Rates in Case Recovery Crumbles

Britain’s biggest financial institutions are on track to meet the Bank of England’s deadline to be ready for negative interest rates, giving authorities another tool to aid the economy if the recovery fades. Banks including Natwest Group Plc, HSBC Holdings Plc, Barclays Plc and Lloyds Banking Group Plc are close to completing the technical steps necessary to implement negative interest rates. The U.K. central bank in February asked for the work to be done by next month and is likely to deliver a progress report on Aug. 5.

But with growth recovering sharply since BOE Governor Andrew Bailey called for preparations to begin, few expect this new functionality to be used anytime soon. Debate has shifted toward when the central bank should pare back stimulus for the economy to halt rising inflation.

BOE staff briefed members of the Monetary Policy Committee in June that preparations were underway, though many institutions said they needed time to make changes to IT systems and other processes to implement the policy. The BOE declined to comment further.

The swiftness of the recovery in the U.K. pushed inflation above the BOE’s target unexpectedly in each of the past two months, prompting two policy makers to call for a debate in August on curtailing that stimulus program early. Despite that shift, banks have moved ahead with work on negative rates to give the BOE another policy option in the future.

Source: FXPro

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