BoE: Banks Will Need Six Months to Prepare For Negative Rates

The Bank of England said UK banks will need at least six months to prepare for the switch to negative interest rates. This was after the bank fixed interest rates at 0.1%.

The Bank of England asked British banks in October about their preparedness for negative interest rates, after it revealed in September that it was exploring the possibility of cutting interest rates below zero if needed.

In a letter to lenders released on Thursday, Sam Woods, head of the bank’s prudential regulatory authority, said most banks will need time to change systems and processes and implement strategic or tactical solutions.

Negative rates are effectively forcing companies and individuals to borrow money and penalize banks for depositing cash, thus in theory encouraging them to invest and spend more – measures that can help the economy grow.

However, it is exerting more downward pressure on banks’ profit margins, which, if passed on to clients, could fail to produce the desired effect.