The Bank of England is consulting the UK's big banks to ask them how they would cope if official interest rates were to move into negative territory. Right now the Bank's target rate is set at 0.1 percent. It does not appear that a move to negative rates is imminent: the banks have been given a deadline of November 12 to provide their response, which happens to be after the BoE's next rate-setting date. Still, there is market speculation that official rates could be pushed into negative territory by the spring of 2021. possibly after another round of quantitative easing.
Does anyone seriously think that either QE or negative rates will help in any way? The efficacy of monetary policy in general is in doubt, with fiscal policy once again regarded as by far the more potent policy tool for dealing with a stagnant economy. Keynes expressed major doubts about about monetary policy as a stimulus tool all those years ago, with the concept of the liquidity trap. QE only increases the monetary base, which does nothing to boost the real economy unless it translates into actual spending. As for ultra low or negative rates, the main effect of Japan's decades-long experiment with such an approach has been to create a cohort of zombie banks, with little demonstrable effect on the economy.
There's no reason to think that things would go any differently in the UK. You have to wonder if the Government is onside with what the Bank of England is considering here, but with the COVID pandemic ramping up again and the prospect of a no-deal Brexit looming ever larger, this issue may not be at the top of anyone's mind.
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