A member of the Bank of England’s Monetary Policy Committee has indicated that the impact of a second wave of COVID-19 on the economy could necessitate the introduction of negative interest rates. Gertjan Vlieghe said that where negative rates have been used in other countries, “the effect has generally been positive.” While the Bank has lowered interest rates to a record 0.1% and injected more money into the system through quantitative easing, Mr Vlieghe said QE “is probably less potent now than in March”, and that the Bank will need to consider other options. “There is a tremendous challenge ahead,” he said, “Given that virus prevalence has been increasing again recently, it is likely to weigh more heavily on economic activity. Indeed, it appears that the downside risks to the economic outlook are starting to materialize.” He added: “In my view, the outlook for monetary p olicy is skewed towards adding further stimulus. My own view is that the risk that negative rates end up being counterproductive to the aims of monetary policy is low.”
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