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ANNA JONES: Will we see an interest rate drop before a rise?  Well the Governor of the Bank of England, Mark Carney, said this week that rates could be cut further and could even drop below zero.  Our Economics Editor, Ed Conway, has been speaking to the Deputy Governor of the Bank of England, Ben Broadbent.  

ED CONWAY: We’ve got fraught meetings, discussions, negotiations between Greece and its other partners in the eurozone, a lot of concerns over what happens next, how much of a risk do you think this is to the UK economy?  Is it as big as it was back in 2012 for instance?

BEN BROADBENT:   Well you’re right to talk about 2012 and indeed 2011, 2011 was the year I joined the MPC and throughout the first year, two years of my tenure on the committee, this was a perennial concern.  I spent more time talking with my colleagues about what was going on in the euro area than about any other single issue during that time and of course the negotiations between Greece and the rest of the eurozone do present some risks to us but I think it is also true to say that they are smaller than they were in 2011and 12.  Europe itself has made progress in building firewalls as it were or improving the health of the financial system, making it more resilient to such shocks should they occur and the same goes for us.  It is important also to understand that what was going on in 2011/12 was reflecting concerns that were much wider than just Greece and so the cost of borrowing for governments in many other countries was going up at that time, that has not occurred on this occasion.  We are a European country, we sit right on the doorstep of the euro area and ensuring that the currency union is sustainable and successful is crucial for the economic fortunes of the UK.

EC: If we can also go to this question of what the Bank, the tools the Bank has in its arsenal because everyone assumed up until recently that 0.5% interest rates, that was effective zero, that was as kind as low as you could go and the Bank said almost as much and now that’s changed, now there’s a feeling that you could go below that.  What’s changed in your mind-set?

BEN BROADBENT: Well let me say first of all, Ed, that that’s not our expectation that we will.  We emphasise  in our inflation report that the MPC still believes that the next move in interest rates is likely to be up but you’re right, we took the opportunity to say that the effective lower band in our view is somewhat lower than we thought it was three to four years ago.     

EC: Is it zero, is it a little bit above zero?  Is it below zero?

BEN BROADBENT:   I am not in a position to give a precise number and I’d also emphasise, Ed …

EC: Do you know it though, do you have a hunch as to what it is?  

BEN BROADBENT:   No, if I did, I would tell you, not particularly.  Look, let’s remember where interest rates came from for a moment, okay.  So we’re talking about margins, there were interest rates out there that are minus 0.1% or minus 0.25%.  We cut interest rates from close to six all the way down to one half of one percent, that is a big, big move.  The margins we’re talking about compared with that move are relatively small.   

EC: But you wouldn’t rule out negative interest rates at some point in the future?  

BEN BROADBENT:   Well I can’t in principle rule them out entirely but we don’t think they’re likely at the moment, as I say.  The economy is growing, real incomes are growing that much faster, unemployment is falling, spare capacity is being used up, all that is a good thing and it means that once these drops in energy prices have dropped out of the annual comparison and in the following year or so, we expect inflation to get back up to our target rate of 2%.  

AJ: Dr Ben Broadbent there, talking to Ed Conway, our Economics Editor