Negative BoE interest rate unlikely even in hard Brexit, says Morgan Stanley

(Reuters) – Investment bank Morgan Stanley (NYSE:MS) said on Tuesday it saw a “high barrier” to the Bank of England cutting interest rates below zero, even if Britain ends its Brexit transition period in December with no EU trade deal.

Noting recent comments by BoE chief economist Andy Haldane and Deputy Governor Dave Ramsden, the U.S. bank told clients, “With two heavyweight insider Monetary Policy Committee members coming out publicly in opposition, at least at the moment, we see a high barrier to negative policy rates.”

It said a bad Brexit outcome, such as World Trade Organisation terms instead of a free trade deal, could force the BoE to cut bank funding rates (TFS) to sub-zero, rather than the main policy rate.

“We now think that outright cuts in Bank Rate to below zero in a WTO-style Brexit outcome look less plausible. Instead, adjusting TFS and providing term funding at negative rates, while leaving Bank Rate at 0%, looks like the more plausible option,” Morgan Stanley added.