Negative Interest Rates: The Resistance Starts

The Bank of England is on course to cut interest rates below 0.5% - a move that will be met with resistance.

The Bank of England is all but set to cut interest rates towards, and potentially even below, 0% over coming months.

With Martin Weale, a staunch anti-cutter on the MPC, saying he would support a cut at the August meeting, markets have started to bet heavily on the cut.

The most obvious expression of such bets is a decline in Sterling which we are presently seeing.

However, the cutting of interest rates below the present 0.5% will be met with fierce resistance.

Pensions minister, Ros Altmann, warned negative interest rates on current and savings accounts pose a threat to the financial security of older savers, who often rely on their savings to provide a retirement income.

The threat of negative interest rates was probably not one which pensioners, who voted overwhelmingly for Brexit, were expecting their vote to deliver.

The impact on savings accounts has been thrown into stark view on 26th July with the RBS group writing to their 1.3M-strong customer base that they should expect notable changes to their savings accounts.

"Global interest rates remain at very low levels and in some markets are currently negative. Dependent on future market conditions, this could result in us charging interest on credit balances," the group said in a letter to RBS and Natwest customers.

FSB deeply Concerned About RBS and Natwest Warning

The UK’s largest small business group - the FSB - reacted with concern to the warning that RBS could consider charging business customers to deposit money.

Mike Cherry, National Chairman at the FSB, said:

“Today’s warning from Natwest and RBS will be deeply concerning to small firms. FSB’s latest research shows small business confidence is already at a four year low. Firms are less optimistic, cutting headcount and curbing investment intentions.

“When the Monetary Policy Committee meets next week to decide on interest rates, we would call on them to do everything possible to consider the implications of changing interest rates for smaller firms and the self-employed looking to maintain or grow their business.

“It is now vital that all finance providers holding deposits from small businesses do everything they can to update customers concerned about any changes to their Business Current Account (BCA) during this uncertain economic period.

“We would also encourage small firms themselves to take action and consider whether it’s worth switching to a more competitive BCA. One resource to consider is the Business Banking Insight website, which compares BCAs offered on behalf of every bank operating in the UK, to see whether there’s a better deal for your business.”