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By Andy Bruce, David Milliken and William Schomberg
LONDON, Feb 4 (Reuters) - Britain's banks need at least six
months to prepare for any cut in interest rates below zero, the
Bank of England said as it kept its stimulus programmes on hold
ahead of what it hopes will be an economic recovery later this
year.
The central bank published on Thursday the results of its
review of how prepared lenders such as HSBC, Lloyds and Barclays
are for any move to implement negative interest rates in Britain
for the first time.
"The Prudential Regulation Authority's engagement with
regulated firms had indicated that implementation of a negative
Bank Rate over a shorter timeframe than six months would attract
increased operational risks," the BoE said in a statement.
The pound jumped by more than half a cent against the U.S.
dollar and British government bond yields jumped by around 3
basis points as investors scaled back their bets that the BoE
will implement negative rates anytime soon.
The BoE said it did not want send a signal that it intended
to set a negative Bank Rate but it "would be appropriate to
start the preparations to provide the capability to do so if
necessary in the future."
BoE regulators should start getting banks ready to implement
negative rates at any point from six months time, it said.
The BoE also said it was working on developing a new message
for investors and businesses about when it might start to remove
the huge stimulus in place for Britain's economy.
"The Committee agreed to ask Bank staff to commence work to
reconsider the previous guidance on the appropriate strategy for
tightening monetary policy should that be required in the
future," it said.
The BoE maintained its Bank Rate at 0.1% and left the size
of its total asset purchase programme at 895 billion pounds
($1.22 trillion), as expected.
The BoE said Britain's economy would probably shrink by 4%
in the first three months of 2021 but it was expected to recover
rapidly towards pre-COVID levels over 2021.
The central bank lowered its forecast for British economic
growth for this year as a whole to 5% from its November forecast
of 7.25% but it raised its forecast for growth in 2022 to 7.25%
from 6.25%.
It stuck to its previous forecast that Britain's economy
would return to its size at the end of 2019, before the pandemic
struck, by the first quarter of 2022.
(Writing by William Schomberg; Editing by Toby Chopra)
