Negative interest rates in UK best avoided, BoE's Vlieghe says

Interest rates in the UK could conceivably go "a little bit negative" one of the Monetary Policy Committee's members said.

In an interview given to the London Evening Standard, Gertjan Vlieghe said "Theoretically, I think interest rates could go a little bit negative."

When asked just how far into negative territory they might be lowered, he cited estimates showing that the "switching point" - the threshold past which the costs of negative rates outweighed their benefits - lay in a range from -0.75% "and up".

However, he also voiced his preference for avoiding such an outcome alltogether given the difficulty of knowing just where the switching point lay.

"I don’t even want to get close to it"

The Bank would “have to think very carefully” about the costs and benefits before such a move.

"I think the switching point is somewhere around minus 0.5%, minus 0.75%, maybe minus 1%. But I’m also saying I don’t even want to get close to it because I don’t know exactly where it is,” he said.

He went on to explain that the limit for interest rates was probably a function of the cost to large companies of storing, transporting and insuring enormous piles of cash themselves.

“Even if you are willing theoretically to consider negative interest rates, there is only so far that they can go negative before you start worrying about the thing that central bankers have been worrying about all these years [people stashing their cash under the mattress]."

When drawn on the subject of Brexit and its potential impact, he said it would dominate the MPC's discussions over the next few months and cloud the data too, making it difficult to distinguish the real movements reflecting the economic recovery.

That meant rate-setters would need to see much larger shifts in the data before deciding on a move, he said.