Are Negative Interest Rates Coming To The UK?

On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Julie Zhang, director, North America sales enablement, discussed the potential for negative interest rates in the UK. They also chatted about the U.S. employment report for January, the potential for additional fiscal stimulus, and the state of the U.S. housing market.

Bank of England to study potential impacts of negative rates

Following the conclusion of its monetary policy meeting on Feb. 4, the Bank of England (BOE) made headlines by announcing that banks should prepare for the possibility of negative interest rates. “It’s important to note that the BOE stressed that this should not be interpreted as a signal that negative rates are on the way. Rather, the announcement is the BOE’s way of preparing the banking system for the possibility,” Ristuben stated.

He explained that moving to negative rates could create some fairly significant stresses on the infrastructure of the UK financial system as a whole. “With this in mind, the BOE is essentially saying that it’s going to use these next several months to seriously study the impacts that negative rates could have—and also determine the feasibility of implementing such rates,” Ristuben added.

The real takeaway from the central bank’s message, he said, is an acknowledgment that the ongoing weakness in the British economy remains a concern for policymakers. The UK has been battered by both the coronavirus pandemic and the Brexit saga, Ristuben noted, and the BOE’s announcement serves as a signal that it’s committed to doing everything it can to create a softer economic landing in the wake of both crises.

U.S. job growth disappoints, but markets rise on fiscal stimulus prospects

Turning to the U.S., Ristuben said that the nation’s employment report for January showed a gain of just 49,000 jobs, which he characterized as a disappointing number. “This was below consensus expectations, which were already weak to begin with,” he remarked, adding that December’s job losses were also adjusted further downward—from 140,000 to 227,000. The downward revision is a confirmation of the impact that last fall’s spate of renewed lockdown measures had on the economy, Ristuben noted.

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