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How negative interest rates would benefit SMEs

POSTED: 27th February 2013
IN: Business news
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Deputy governor of the Bank of England Paul Tucker has hinted at a possible move towards negative interest rates.

Mr Tucker had small and medium-sized enterprises (SMEs) on his mind when he made the suggestion while speaking to MPs on the Treasury Committee yesterday (February 26th).

“I hope that we will think about the constraints of setting negative interest rates. This would be an extraordinary thing to do and it needs to be thought through carefully,” he said.

This is certainly a radical idea and would result in average households receiving less interest on their savings, but it does have clear positive implications for small businesses.

Indeed, negative interest rates would encourage banks to lend more to SMEs so they can grow and thrive in what are volatile economic conditions.

And with the UK losing its triple-A rating from Moody’s earlier this week, it seems some major changes are needed to get the UK economy into action once again. 

Essentially, negative interest rates would encourage banks to lend to SMEs because it would be expensive to keep excess liquid assets on deposit at the Bank of England.

Ray Boulger, of independent mortgage adviser John Charcol, responded to Mr Tucker’s proposal.

He said: “Mr Tucker said that he has previously raised the topic of negative interest rates and the fact that he has now chosen to go public with this suggestion implies there is now more consensus at the MPC than at even three weeks ago at its February meeting that more stimulus of some sort is needed.” 

Currently, SMEs can take advantage of the Funding for Lending (FLS) scheme, which has been launched to ensure small firms have the finance they need to survive and grow.

In his recent address, Mr Tucker also posed the idea of extending the FLS scheme and raised the possibility of new policies to ensure SMEs have enough access to working capital. 

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