Pound swings after BoE's Haldane moots negative rates

The pound fluctuated against the dollar and the euro after the Bank of England’s chief economist said the central bank was looking at negative interest rates to support the economy during the Covid-19 crisis.

Andy Haldane said the BoE was examining a number of potential actions, including buying riskier bonds in the market, because it was running low on conventional ways to loosen monetary policy. He said no decision to take such measures was imminent.

“It’s something we’ll need to look at – are looking at – with somewhat greater immediacy,” Haldane told the Sunday Telegraph when asked if borrowing costs could go below zero. “You mention negative rates, but there are other options beyond that, or alongside that, that we’re looking at as well.”

Haldane, who sits on the BoE’s monetary policy committee, also said the UK was heading for an unemployment crisis comparable to the early 1980s when more than 3m people were out of work.

His comments suggested the BoE was examining negative interest rates more seriously than other officials had implied. Governor Andrew Bailey said on Friday policymakers were not considering the step because it would raise problems for the UK’s banks.

Cutting rates below their record low of 0.1% would be a “very big step” requiring an “extensive communications exercise”, Bailey said. His remarks followed Deputy Governor Ben Broadbent’s comment that the BoE was keeping all options under review but that negative rates could do more harm than good.

Sterling fell against the dollar and the euro in morning trading but recovered to trade up 0.3% to $1.2155 and up 0.4% to €1.1235 at 12:55 BST.

Haldane has been open to the idea of cutting rates below zero before. He said five years ago that rates might have to go negative as the economy slowed.

“The fact that the Bank has been mulling this over for five years could suggest that policymakers could be more prepared for such an outcome than the market had considered likely,” Jane Foley, head of foreign exchange strategy at Rabobank, said.

“Given the scale of the economic crisis that Britain is entering into, it may be wise for investors to keep an open mind as to monetary policy developments over the next year or so in the UK and beyond.”