AFTER the Brexit vote of 2016 the Bank of England unveiled a package of emergency measures. That August the monetary-policy committee (MPC) launched extra quantitative easing and reduce Bank Rate,the benchmark interest rate, from 0.5% to 0.25%. It also introduced the “term funding scheme” (TFS), and which channels ultra-cheap credit to banks.
As The Economist went to press on February 8th the MPC was expected to maintain interest rates on hold. Yet it was also expected to confirm the end of the TFS,possibly as soon as this month. Some analysts worry that the crawl will damage Britain’s shaky economic growth.
The TFS was designed to alleviate problems that can emerge when monetary policy is already very loose. Cutting to 0.25% risked squeezing the margin between what banks paid savers and what they charged borrowers. Banks are loth to offer savers a negative interest rate, lest their disgruntled customers pull out their money and stick it under the mattress. So it is difficult for them to pass on lower rates to...
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Source: economist.com