Paul Tucker attempts to spice up British monetary policy

Negative interest rates are like candy floss to central bankers, it is believed.

In the midst of his testimony to the treasury select committee, Bank of England deputy governor Paul Tucker gave a suggestion that Britain might be considering some unorthodox monetary policy of its own:

I hope we’ll think about whether there are constraints to setting negative interest rates. This would be an extraordinary thing to do and it needs to be thought through very carefully.

Such a move would be unlikely to affect the Bank's base rate. While we still have cash, that rate is pretty firmly stuck at the zero lower bound, because savers will always be able to withdraw savings as cash and horde it that way, safely out of reach of the banks trying to charge interest on their money.

Instead, it would be the rate paid on the Bank's overnight deposits which would be hit. This is the sum the Bank pays to other banks which leave their money with the Bank of England. It's basically the interest rate the Bank charges when it's actually acting like a bank. It can get away with it because, while withdrawing your savings and stuffing them under a pillow may work for you or I, it's less of an option for Halifax or HSBC.

The Financial Times' David Keohane thinks that the statements, which echo suggestions in the minutes of the monetary policy committee released last week, could be an attempt to talk down the value of the pound. Keohane writes:

Throwing around the negative interest rates idea has become very trendy all of a sudden with Draghi, Praet and Constancio weighing in and, we'd argue, using the threat to substitute for policy impotence.

Was Bank of England deputy governor Paul Tucker doing the same thing? Using a jedi-trick to talk down sterling perchance?

Of course, as Keohane points out, if that was the aim, it didn't do a whole lot of good. The effect of Tucker's words is almost lost in the general volatility of the market today:

Maybe the Bank of England is just feeling a little bit jealous of its Japanese counterpart? After all, they're gearing up to do all kinds of cool new things with monetary policy — Foreign bond purchases! Stock exchange targeting! Capital stock nationalisation using the profits of quantitative easing! — while we're stuck with boring old open market policy, where a chart from eight months ago is still accurate.

Continuing the theme of literally illustrating metaphors, this is a picture of some spices. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images/Carl Court
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Nigel Farage: welcoming refugees will lead to "migrant tide" of jihadists

Ukip's leader Nigel Farage claims that housing refugees will allow Isis to smuggle in "jihadists".

Nigel Farage has warned that granting sanctuary to refugees could result in Britain being influenced by Isis. 

In remarks that were immediately condemned online, the Ukip leader said "When ISIS say they will flood the migrant tide with 500,000 of their own jihadists, we'd better listen", before saying that Angela Merkel, the German Chancellor, had done something "very dangerous" in attempting to host refugees, saying that she was "compounding the pull factors" that lead migrants to attempt the treacherous Mediterranean crossing.

Farage, who has four children, said that as a father, he was "horrified" by the photographs of small children drowned on a European beach, but said housing more refugees would simply make the problem worse. 

The Ukip leader, who failed for the fifth successive occassion to be elected as an MP in May, said he welcomed the prospect of a Jeremy Corbyn victory, describing it as a "good result". Corbyn is more sceptical about the European Union than his rivals for the Labour leadership, which Farage believes will provide the nascent Out campaign with a boost. 

 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.