MNI POLICY: BOE's Vlieghe Sees Negative Rates Boost To Economy

Bank of England Monetary Policy Committee member Gertjan Vlieghe said on Tuesday that evidence suggested negative rates were likely to be beneficial in the UK economy but that a decision on their implementation was "a little further away".

In downbeat remarks about the economic outlook, he said in a speech that job losses were likely to be heavier than the central bank had forecast back in August, with firms struggling to adjust quickly to the new economic reality. Longer-term, a shift to more productive sectors could offset the damage done elsewhere, but the near-term outlook for jobs is grim, he said.

With vacancies running at only 60% of their levels at the start of the year, "the risks are skewed towards even larger losses, implying even more slack in the economy than in our central projection," said Vlieghe, an external MPC member.

In its previous quarterly forecast round in August, the MPC said its central view was for unemployment to peak at 7.5%. on the international standard ILO measure.

QE LESS POTENT

The Bank is currently engaged in a consultation exercise with banks and other financial service companies over the practicalities of introducing negative rates. This ends after the November MPC meeting, but Vlieghe refused to be drawn into speculation over the timing of any move below zero or when the MPC might extend QE.

With rate expectations very low and markets functioning normally, QE is likely to be less potent than in the past, but the flipside of this is it could eventually be unwound without causing volatility, he said.

"In a world of low rate expectations, if you manage those rate expectations carefully, and liquid markets then if you do it slowly enough and orderly enough QE unwind can be pain free," Vlieghe said, in response to a question from MNI.