THE Bank of England will decide today what’s next for interest rates and there is speculation they could turn negative – but what does it mean for your finances?
The central bank has been looking into whether it is possible to take the base rate below zero to help the economy recover from the impact of the coronavirus pandemic.
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The Bank of England will decided whether to change the base rate today
In September it launched a consultation with banks to see how they would handle the unprecedented move before taking action.
Today, it is expected to make a decision over whether negative interest rates would be viable and whether to change the base rate.
It is currently set at a record low of 0.1% amid the uncertainty of the pandemic.
If the central bank takes rates below zero, it could see savers pay banks to hold their cash and lenders pay borrowers to take out loans and credit.
However, it is unlikely that rates will be taken negative today – but it’s not yet been ruled out as something to consider in the near future.
Laith Khalaf, financial analyst at AJ Bell: “Given the picture is still unfolding, the Bank’s interest rate committee will probably sit on their hands for now, particularly seeing as they are running out of monetary policy ammunition.
“The Treasury is throwing vast sums of money at the economy, and that means monetary policy doesn’t have to do all the heavy lifting.”
He added part of the challenge for the bank is that the true impact of the pandemic on the economy is distorted because of government schemes like furlough and Covid grant schemes.
“It remains to be seen just how badly the economy has been scarred once these sticking plasters have been removed,” he said.
How will negative interest rates affect your savings?
Banks and building societies use the base rate to decide how much they charge borrowers and pay savers.
Negative rates will affect savings, pensions and investments, as well as loans, mortgages and credit.
Savers could see banks and building societies charge them to hold their cash, instead of earning interest on them.