Bank of England official says evidence on negative rates is 'positive'

Jonathan Haskel is open-minded about the controversial policy and says the risks to the UK economy are 'skewed to the downside'

Jonathan Haskel has become the latest Bank of England ratesetter to leave the door open to negative interest rates.

The Monetary Policy Committee (MPC) member echoed his colleague Silvana Tenreyro’s open-mindedness about the controversial policy, expressed in an exclusive interview with The Sunday Telegraph last month, in which she said the experience of other countries was "encouraging".

He told the Barclays Global Inflation Conference that evidence from the European Central Bank, which took the plunge into negative territory in 2014, “strongly suggests some positive evidence that negative rates have benefited the economy”. 

In the Bank’s August monetary policy report it said negative rates were being considered. In the minutes of its September meeting, it said it had opened formal talks with lenders about the real-world challenges of negative rates, stoking market speculation of a cut. 

Some economists have doubted that cutting interest rates below zero can be effective because, by reducing commercial banks’ profitability, they deter them from passing on the policy.

But Prof Haskel said: “They’ve mostly been passed through to corporate depositors if not to retail depositors, effectively increasing lending and business investment.”

Regarding the overall outlook for the economy, Prof Haskel strayed from the optimism of the Bank’s chief economist Andy Haldane, adding that the risks were skewed to the downside and that he stood “ready to vote for more stimulus measures should they be needed”.

“The long-term effects on productivity and inflation are probably going to be rather negative,” he said. “It’s hard to predict what’s going to happen because loads is happening very quickly in the economy.”

It came as a report from Baker McKenzie showed the combination of Covid-19 and a failure to reach a post-Brexit trade deal could cost the UK £134bn each year in lost GDP for a decade.

The law firm forecast that the pandemic will push GDP 2.2pc below the levels that had been expected before the outbreak and that without a free trade agreement, Brexit would cost 3.9pc of GDP.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he expected August’s GDP growth, which will be revealed on Friday, was likely to be 4pc – below the 4.7pc consensus – held back partly by low output in the transport sector.

He cited data from the Civil Aviation Authority showing that air passenger numbers were still down 81pc year-on-year in August, only a marginal improvement on July’s 89pc decline.

He also noted that an Office for National Statistics survey showed that turnover in the food service and accommodation sector was nearly a quarter below normal levels, despite the Eat Out to Help Out scheme boosting footfall in restaurants. This was most likely because it displaced demand from cafés and takeaways towards restaurants, he said. 

“The case for more quantitative easing after [the Bank’s] current ‘turn of the year’ end point will be quite strong at the MPC's next meeting on Nov 5, though we think it will wait for GDP data for September and October, which will be available by its Dec 17 meeting, before authorising £50bn more gilt purchases,” Mr Tombs concluded.