The Bank must not fear radical action. Britain needs negative interest rates
As Britain and the rest of Europe battle the second wave of the Covid-19 pandemic, desperate eyes turn to central bank bosses, wondering what rescue plans they have up their sleeves.
This year the Bank of England has pumped £300bn into the UK economy via its quantitative easing programme. The European Central Bank (ECB) pushed more than double that amount into the 19 eurozone countries, and the US Federal Reserve has done the same to keep credit flowing through the banking system.
These moves have prevented another financial crash, and given governments a degree of confidence that while they wrestled with the pandemic, central banks would keep cheap credit flowing.
Looking forward, the signals are not of recovery, but relapse, and it is not clear that the same old central-bank magic will make much of a difference. Inflation is sinking like a stone as consumers rein in their spending again. Annual prices in the eurozone fell by 0.3% in September following a 0.2% decline in August, according to figures last week. Consumer price inflation in the UK dropped to 0.2% in August, meaning prices barely rose.
Neither the Bank of England nor the ECB is anywhere near the 2% inflation level the central banks are expected to maintain, in theory.
To make matters worse, Britain’s high street lenders are beginning to tighten their lending criteria and increase mortgage and credit card loan rates, making it more difficult for poor and middle-income households to access credit. Understandable though this might be from ...
More on: www.theguardian.com