The Bank of England has written to UK banks asking them how ready they are for interest rates of zero or less.

The UK would be following in the footsteps of countries such as Japan and Switzerland if it cut the cost of borrowing to such a low figure.

“We are requesting specific information about your firm’s current readiness,” the bank’s deputy governor, Sam Woods, said in the letter to banks.

Mr Woods said he wanted to know about technological challenges.

“We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes,” he said.

The past few years have been marked by outages and other problems with the computer systems of various British banks.

Last year, MPs condemned the level of IT failures at banks, warning that financial levies on firms and more regulation may be needed.

While the Bank of England may set its base rate below zero, it is unlikely most consumers will immediately enter the topsy-turvy world of being paid to borrow money.

Those on fixed-rate mortgages will see no difference, while variable-rate mortgage terms often state that borrowers will never pay less than zero.

Savers with deep pockets such as the wealthy and the banks themselves, may be charged to deposit their money.

Banks depositing cash overnight at the European Central Bank currently pay 0.5% to do so. In November, Swiss bank UBS began charging up to 0.75% for cash deposits from wealthy clients.

Source: BBC