(Sharecast News) - Bank of England deputy governor Dave Ramsden said on Wednesday that it wasn't the time for negative interest rates.
"While there might be an appropriate time to use negative rates, that time is not right now, when the economy and financial sector are already grappling with the effects of an unprecedented crisis, as well as the myriad uncertainties the crisis has created," Ramsden said.
"There can be knock-on economic effects through the banking system. These effects could reduce or even counteract the stimulus from negative rates.
"There is a real risk of a more persistent period of higher unemployment, and the recent strength in income growth might not be sustained," he said.
"The negative impact on the supply side of the economy, or degree of scarring, could potentially be greater than the 1.5% we have assumed to date based."
Sterling extended its gains against the dollar following the comments and by 1410 BST was trading up 1.1% at $1.3090.
The currency had already rallied earlier in the day after the EU's chief Brexit negotiator, Michel Barnier, told the European parliament that an agreement with the UK could be reached.
Barnier said: "Despite the difficulties we've faced, an agreement is within reach if both sides are willing to work constructively, if both sides are willing to compromise and if we are able to make progress in the next few days on the basis of legal texts and if we are ready over the next few days to resolve the sticking points, the trickiest subjects."
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