Treasury committee MP predicts negative rates

BoE

A member of the Treasury select committee has predicted negative interest rates will be the next step in monetary stimulus as MPs debate the merits of quantitative easing in the House of Commons.

Conservative MP Steve Baker argued this week that the Bank of England’s monetary policy stimulus had gone from “an exercise in saving the financial system to an exercise in kicking the can down the road”.

Speaking on monetary policy, Baker said: “How will it develop in future? We have gone from low rates to QE, and I think we will go to negative rates.”

His comments came the same day the Bank of England said any future rate cut would be “close to, but a little above, zero” as it kept rates on hold at 0.25 per cent.

Most members of the monetary policy committee expect a rate cut, widely expected to hit 0.1 per cent, before the end of the year.

Baker’s comments were part of a debate calling for the Bank of England to produce a detailed analysis about the effects on quantitative easing on financial markets and the wider economy.

The debate was brought to the House of Commons by former investment banker and SNP MP Ian Blackford, who argued quantitative easing inflated property and financial markets, while not achieving its aim of stimulating lending and supporting the wider economy.

The Bank of England boosted its quantitative easing package by £60bn following the Brexit vote, taking the total stock of asset purchases to £435bn.

Pointing to the FTSE 100, Blackford says it has risen 89 per cent since the implementation of quantitative easing in 2009, from 3,529 in March that year to 6,673 this week.

Blackford said he agreed with prime minister Theresa May that QE had “helped those on the property ladder at the expense of those who can’t afford to own their own home”.

He added that Japan experienced a significant period where lending fell following its implementation of unconventional monetary policy.

“Of course, that outcome has been mirrored here,” Blackford said, pointing to broad money falling slightly from £2,220bn in 2010 to £2,210bn by July.

During the debate, Baker, who co-founded free market think tank The Cobden Centre, also criticised the prospect of helicopter money arguing there was a “misguided belief” that there was justice in printing money and distributing it to the population.

“This kind of naive inflationism is madness,” Baker told MPs.

Bank of England governor Mark Carney has previously ruled out helicopter money as a policy measure, describing it as a “compounding ponzi scheme”.