BOE’s Bailey Tells MPs He Sees Low U.K. Rates for Long Time
(Bloomberg) -- U.K. interest rates are likely to stay low for a long time, Bank of England Governor Andrew Bailey told lawmakers from the ruling Conservative Party on Wednesday, according to two people attending the meeting.
The governor also told the closed meeting of the 1922 Committee of the party’s rank-and-file members of parliament that the central bank “will do everything we can to support the economy,” according to the people, who asked not to be named talking about private discussions.
A spokeswoman for the BOE declined to comment.
The BOE has worked closely with the government to stem the economic fallout from the coronavirus pandemic, which has sparked the deepest recession in 300 years. Unemployment looks set to spike as support for companies and workers is unwound, and national debt has risen over 100% of economic output for the first time since the 1960s.
Bailey’s assessment on rates should provide the government some solace that it can manage the high debt burden for longer than normal because its borrowing costs are likely to remain low.
The comments effectively echo remarks he made last month when he stressed the need to shrink the BOE’s balance sheet before hiking the benchmark rate -- a major shift in the central bank’s strategy for removing emergency stimulus.
Since becoming governor in March, Bailey has overseen a reduction in the benchmark to a record-low 0.1% and increased asset purchases to contain the economic impact of the pandemic. The BOE has also loaned money on generous terms to keep liquidity high.
Chancellor of the Exchequer Rishi Sunak told the House of Commons Treasury Committee earlier Wednesday that in the medium term the U.K. needs to return to “strong and sustainable public finances.” The Treasury’s future fiscal framework will need to consider the risk that government debt-interest costs could change, he said.
The challenges facing Bailey and Sunak could be compounded further later this year if Britain fails to secure a free-trade agreement with the EU, its largest trading partner. According to a joint report by MakeUK, the country’s largest manufacturing lobby group, and services firm BDO, some of the most vulnerable areas of the U.K. face a “triple whammy” of coronavirus, high exposure to weakened EU trade and tariffs at the end of 2020.
While it’s unusual for a non-politician to attend a meeting of the 1922 Committee, which holds closed-door meetings, the BOE said earlier that it’s “part of the bank’s regular engagement with political representatives.”
Bailey also laid out three things that need to happen to get the economy rolling, the people said.
They were to lift lockdown restrictions and get people back into work, to help people overcome their natural caution, including in using public transport, and seeking to boost productivity. Those all lie largely in the government’s remit rather than the BOE’s.
Bailey attended the meeting by Zoom, and the session was beset with technical difficulties, including a few blackouts and poor reception, the people said.
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