BOE’s Tenreyro Says More Stimulus May Be Needed for U.K.

(Bloomberg) -- The Bank of England may need to deliver more stimulus to the U.K. economy, and it’s important for officials to maintain the option of pushing interest rates into negative territory, according to policy maker Silvana Tenreyro.

The remarks add to debate about whether the U.K. central bank needs to add a jolt to the economy as most analysts expect further support coming through faster or increased bond buying. Tenreyro noted the near-term outlook is now worse than when BOE last assessed it in November. Since then, the country announced two more large-scale Covid-19 lockdowns.

“We will see headline-grabbing negative growth numbers, followed by large positive ones when the economy is able to reopen,” Tenreyro said in a webinar on Monday. “Crucial for jobs, incomes and inflation will be the level of output we recover to later in the year, rather than the changes in the interim.”

Work at the central bank on the operational feasibility of taking U.K. rates below zero is still in progress, she said. Her comment on the importance of the policy echoed those made by Governor Andrew Bailey last week and adds to the debate over whether making such a move for the first time in the BOE’s three-century history is right for the economy and the banking system.

“We’ve all been brainwashed to think we can’t go there,” Tenreyro said when asked why the BOE didn’t consider negative rates sooner. It’s not too late to use them now, she added.

Tenreyro also reiterated her view that international evidence suggests that negative rates are helpful on balance. Money markets continue to bet on a 10 basis-point interest rate reduction to 0% by August, and 15 basis-points of easing by the beginning of 2022, unchanged from earlier on Monday.

The central bank has been focused on keeping funding costs for the heavily indebted government, companies and households as low as possible during the crisis. Since the start of the pandemic, BOE policy makers have slashed the benchmark interest rate to a record-low 0.1% and doubled asset purchases to 895 billion pounds ($1.2 trillion).

BOE official Sam Woods told lawmakers last week that the central bank plans to publish more research on negative rates next month.

Read more: Goldman Strategists Like 4-to-1 Odds on BOE Interest-Rate Cut

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