Interest rates in the UK could follow the US and Japan and head down to zero per cent, a leading member of the Bank of England's monetary policy committee (MPC) stated today.
Charles Bean told the Financial Times: "We have to recognise that it’s a possibility.
"Some of the excited media coverage… make people think that we're about to be there in January, but of course, the bank rate is still at two per cent, so we still have some margin to go yet.
"But of course we may find ourselves getting them all the way to near zero."
He explained there were technical problems over having a zero per cent base rate, as banks' deposits at the Bank of England are paid at 0.25 per cent under the base rate.
In the US, Federal Reserve this week cut its interest rates to between zero and 0.25 per cent.
The deputy governor of the Bank of England also told the FT further cash may be needed to be put into the banks to boost their capital bases – on top of the government's existing £37 billion investment in RBS and the merged HBOS and Lloyds TSB group.
"Of course, with the economy slowing… it may well turn out that further capital injections are required.
"I certainly wouldn’t rule that out. It may well be necessary if the banks feel they’re going to feel comfortable about continuing to lend."
He added a further problem was ensuring banks had the funds to lend as well as the capital base to protect them from losses.
He welcomed the Treasury cutting the price of credit guarantees for interbank lending – stating they did originally seem "the expensive side".
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