Interest rates from the Bank of England currently stand at 0.1 percent in an unprecedented drop taken by the central bank as a result of the coronavirus crisis. The base rate of the Bank was slashed twice in March, firstly to 0.25 percent and then to the 0.1 percent at which it currently stands – the lowest in the bank’s 325 year history.
A base rate below zero means high street banks will also have to pay to deposit cash with the central bank.
And these negative interest rates could put a significant amount of strain on familiar providers – which could see their lending profit margins significantly narrowed.
However, these negative rates could also pose a significant issue for savers, who could potentially be asked to effectively pay to save their money.
Similar initiatives of negative rates have been adopted by countries such as Japan, Switzerland and Sweden.
Speaking previously of Britons who choose to save at home instead of banks, Simon Stanney, General Insurance director at SunLife said: “While putting coins into a jar can be a good way of stopping yourself from spending loose change, jars and tins were never intended as secure homes for hard earned cash.
“Not only is it very tempting to raid rather than leave for a rainy day, but it doesn’t stand a chance against inflation.
“Plus, if your home is broken into, a savings jar full of cash is easy pickings, and may not be covered by your home insurance.”
Negative interest rates are considered a highly extreme measure to be taken by any central bank.
The Bank of England stereotypically makes the move to lower interest rates in order to encourage more spending and less saving.
However, with the economic effects of coronavirus as widespread, this may not be achievable for some.
While it is not yet clear if negative interest rates will be adopted, let alone if they will be passed on to customers, it is likely a move such as this would cause chaos in a fragile economy.
The Chancellor, Rishi Sunak, has already warned the UK is facing an economic crisis as a result of the coronavirus pandemic.
Mr Sunak warned a Lords select committee Britain is now facing a “severe recession, the likes of which we haven’t seen”.
Recently, Office for National Statistics figures showed public borrowing in April has surged to £62.1 billion – the highest borrowing in any month since records started in January 1993.
Published at Tue, 26 May 2020 09:42:00 +0000