A recent suggestion by deputy governor Paul Tucker that the Bank of England could consider paying a negative interest rate on deposits lodged with it by high street lenders could have implications for the mortgage market, if enacted. Although the Bank remains unlikely to adopt such a policy any time soon, we agree with commentators that it could put downward pressure on savings rates, and make conditions more challenging for those lenders that rely on retail deposits to fund mortgage activity.
Mr Tucker made his comments about negative interest rates when addressing MPs on the Treasury select committee last week. "I hope that we will think about the constraints of setting negative interest rates," he said. "This would be an extraordinary thing to do and it needs to be thought through carefully."
The deputy governor argued that charging banks and building societies interest on deposits they held at the Bank – in effect, imposing a negative interest rate – would incentivise them to reduce those deposits, and increase lending to small and medium-sized businesses.
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