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British banks prepare for negative interest rates

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For now, the the central bank has avoided falling into negative interest rates; former governor urges people to stash money at home

Bank of England’s former governor Mervyn King has urged people to stash money at home if the central bank cuts interest rates below zero. For now, the central bank has avoided falling into negative interest rates. However, UK banks are assessing whether they can be implemented, media reports said. 

That said, the central bank held interest rates steady as the country entered into a new period of lockdown measures. These measures are imposed to curb the spread of the coronavirus infection which is sweeping through the country. 

It is reported that the central bank’s Monetary Policy Committee  was maintaining its lending rate at 0.1 percent. In fact, the central bank urged British banks to prepare for negative interest rates and has asked them about their levels of preparedness in this regard. 

Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute, told the media, “For an economy faced with the headwinds of rising Covid rates, a national lockdown and a still-uncertain outlook on Brexit, a strong monetary and fiscal policy response is essential: further QE, and the recently-announced furlough scheme extension, should be viewed in this light.”

In August, the UK economy climbed 2.1 percent, according to data published by the  Office for National Statistics. The country suffered 19.8 percent contraction in the second quarter of the year on the back of increasing lockdown measures, media reports said. 

In addition, the UK government has extended the furlough scheme to support workers. Now the central bank is expecting the levels of unemployment to reach 7.75 percent next year.

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