(Bloomberg) -- The Bank of England will reduce its key interest rate to zero in November and signal it may go further next year, according to economists at Bank of America (NYSE:BAC) Global Research.
The move will come as part of a package of measures, including a 100 billion-pound ($131 billion) extension of asset purchases to run through to mid-2021, economists Robert Wood, Mark Capleton and Kamal Sharma said in a report published Tuesday. The central bank will also say it’s possible that rates go negative if needed.
“The BOE has, in our view, no monetary ammunition left if it believes the lower bound for bank rate is the current 0.1%,” the report said. “Downside economic risks lie ahead. With few options left we see the probability of the BOE cutting bank rate negative next year approaching 50%.”
The prospect of negative rates in the U.K. was ruled out by former BOE Governor Mark Carney, but since the Covid-crisis struck the British economy and prompted the central bank to slash rates to a record low, the idea has regained prominence.
The ongoing damage to activity, as well as the prospect of job cuts, a second wave of the virus and disruptive break from the European Union, have spurred policy makers to say they are reviewing all available stimulus tools.
Officials are unlikely to conclude this review at the “placeholder” Aug. 6 meeting, the BofA economists said. They also expect no policy changes this week, in line with all the analysts surveyed by Bloomberg, but do anticipate a decision to slow the pace of asset purchases to 4.2 billion pounds per week.
Policy makers will also reduce the rate on the Term Funding Scheme lending below zero, designed to spur bank loans to smaller businesses, they wrote.
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