The Bank of England’s Monetary Policy Committee has told the UK’s banks to prepare for negative interest rates within the next six months.

While the Bank stressed this doesn’t mean negative rates are necessarily going to be put in place, policymakers want to be ready to bring interest rates below zero if necessary.

The request was made at the same time the Bank of England opted to hold interest rates at a record low of 0.1%.

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Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The Bank of England has asked banks to get ready for negative interest rates, which will have struck fear into the hearts of millions of cautious savers.

“They’re already suffering truly dire returns from high street banks, so the thought of having to pay a bank to hold their savings is unbearable. Fortunately it’s also unlikely.

“The Bank was at pains to stress in the meeting that negative rates might never happen. The more that inflation rises closer to the 2% target, the less likely negative rates become, and the Bank is expecting inflation to kick in during the first half of 2021.”

FAQs

What happens if interest rates go negative UK? How do negative interest rates work? Instead of earning interest on money left with the Bank of Englandwhen rates are negative banks are charged to park their cash with the central bank

Has the UK ever had negative interest rates?The Bank of England is a venerable institution. Not once since it was founded in 1694 have interest rates gone negative and there is no immediate prospect of that 327-year-long record ending.

What happens when interest rates are negative?“Negative interest rates penalise consumers and businesses for keeping savings in their bank accounts, as their value would decrease over time. . “Banks would not pay out anything to consumers, who receive zero on their savings, but in the main, investors do not have to pay the banks to hold onto the money for them.

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