Finance bosses have urged the Bank of England to proceed with caution as it weighs up whether to take interest rates negative for the first time in the UK’s history.
Executives at some of the largest lenders said the Bank needed to ‘carefully consider’ whether negative rates would have the desired effect of boosting the economy.
Taking rates negative would effectively mean customers would have to pay to keep their money in a bank, rather than earning interest, in theory encouraging them to spend.
Sinking feeling?: Taking rates negative would effectively mean customers would have to pay to keep their money in a bank
But Amanda Murphy, head of commercial banking at HSBC UK, told the Commons Treasury Select Committee that the Bank of England ‘does have to carefully consider whether negative interest rates have the desired outcomes’.
She added: ‘Where we see places where they have already been introduced – Europe, Japan, Switzerland – we haven’t seen inflation rise and the growth hasn’t come back as strongly as one might have hoped.’
The Bank of England is consulting with lenders to see whether they would be able to cope with negative rates.
Susan Allen, chief executive of retail and business banking at Santander UK, said: ‘We’re ready in many parts of the bank, but there are some legacy systems that were never built for negative interest rates.’
Adapting these systems could take 12 to 18 months, she said.
Lenders were also grilled by MPs about the £42billion they have handed out to small businesses in taxpayer-backed Bounce Back loans.
David Oldfield, chief executive of Lloyds Bank’s commercial arm, said that around 1 per cent of Bounce Back applications at Lloyds were thought to be fraudulent – about five times as many as under normal lending.
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