BoE's Vlieghe mulls further stimulus as Covid risk rises

(Sharecast News) - The Bank of England's Gertjan Vlieghe looked to give some cautious support for negative interest rates on Tuesday, as he warned of a "tremendous challenge ahead" for the UK economy.
In a speech on the health of the economy, published by the Bank, the external member of the rate-setting Monetary Policy Committee said the economy had grown quickly since lockdown measures were eased earlier this year.

Between February and April, GDP fell 25%, but between April and August it rose 22%, he said.

However, Vlieghe pointed out that GDP remained about 9% below its February level, and argued that the outlook for monetary policy remained "skewered" towards further stimulus.

"There is a tremendous challenge ahead," he said. "GDP and labour market indicators stand at levels that are below what has historically been the trough of a recession.

"Given that virus prevalence has been increasingly again recently, it is likely to weigh more heavily on economic activity. Indeed, it appears that the downside risks to the economic outlook at starting to materialise."

The BoE has responded to the Covid-19 pandemic by cutting interest rates to just 0.1%, and has almost doubled its asset purchase programme.

It is now considering whether to cut rates further, and has asked lenders to detail their readiness should negative rates be introduced.

Vlieghe said: "My own view is that the risk that negative rates end up being counterproductive to the aims of monetary policy is low. Since it has not been tried in the UK, there is uncertainty about this, and the MPC is not at a point yet when it can reach a conclusion on this issue.

"But given how short term and long term interest rates already are, headroom for monetary policy is limited and we must consider ways to extend that headroom."

The MPC next meet to discuss interest rates on 5 November.