Lower interest rate on commercial reserves remain an option - Ernst & Young - United Kingdom

• Seven members of the Monetary Policy Committee voted to expand the quantitative easing (QE) programme by a further £25bn to £200bn.

"With the benefit of its latest Inflation Report projections, seven members of the Monetary Policy Committee voted to expand the quantitative easing (QE) programme by a further £25bn to £200bn, although there was some debate and difference of opinion on whether further stimulus was required or if more than £25bn extra was needed.

"The interesting part of the discussion was regarding the possibility of reducing the rate of interest paid on commercial reserves held at the Bank. While the MPC does not wish to implement this policy at present, it could be an option further down the line if economic conditions do not improve.

"The problem is that a move to a negative interest rate on bank reserves would mean QE would turn into a tax on the banks, as they would find it difficult to pass this charge back to their customers. This would undermine the authorities’ attempts to recapitalise the banks and get them lending again.

"We have argued that the QE programme has allowed their best customers to run down their loan accounts, to the tune of perhaps £200 billion, effectively replacing them with these low interest bank balances at the Bank. Charging the banks for these holdings or even offering a zero interest rate would add insult to injury, especially since the aggregate amount is set irrevocably by the authorities.