(Bloomberg) -- Britain’s biggest financial institutions are on track to meet the Bank of England’s deadline to be ready for negative interest rates, giving authorities another tool to aid the economy if the recovery fades.

Banks including Natwest Group Plc, HSBC Holdings Plc, Barclays Plc and Lloyds Banking Group Plc are close to completing the technical steps necessary to implement negative interest rates. The U.K. central bank in February asked for the work to be done by next month and is likely to deliver a progress report on Aug. 5.

“To meet the Prudential Regulation Authority’s six-month expectation our members are deploying tactical solutions to ready their Treasury systems should there be a negative base rate,” said a spokesperson for UK Finance, the banking industry’s main lobby group.

But with growth recovering sharply since BOE Governor Andrew Bailey called for preparations to begin, few expect this new functionality to be used anytime soon. Debate has shifted toward when the central bank should pare back stimulus for the economy to halt rising inflation.

“While technically we’ve been preparing, and we could do it, the likelihood of negative rates in the U.K. has in my view diminished,” Natwest Group Plc Chairman Howard Davies said in a Bloomberg Television interview.

BOE staff briefed members of the Monetary Policy Committee in June that preparations were underway, though many institutions said they needed time to make changes to IT systems and other processes to implement the policy. The BOE declined to comment further.

EU, Japan

Sub-zero rates, already tried in the European Union and Japan, turn banking on its head by charging for deposits while paying those who borrow money. They’re aimed at keeping the cost of money low enough in financial markets to encourage borrowing and spending.

“Negative rates scenarios have mostly been shelved,” said Fabrice Montagne, an economist at Barclays Plc. “It would take a significant drag from the delta wave together with an unexpected worsening of the labor market for them to be reconsidered in the near term.”

Still, a substantial weakening of the recovery or of confidence might be enough to put negative rates back on the agenda, and there are a few risks that may crystalize in the months ahead.

Coronavirus infection rates are surging, and Britain’s exit from the European Union is weighing down trade. A survey of purchasing managers released Friday indicated the economy this month grew at its slowest pace since March and the outlook was the worst since October.

Another factor feeding into the BOE’s thinking is what the Treasury does. Much will depend on how long Chancellor of the Exchequer Rishi Sunak maintains fiscal support for Covid-hit workers and businesses, said Dan Hanson at Bloomberg Economics. “If there is a winter lockdown, 2022 is already a write off for a rate hike,” he said.

Read more: Negative Rates Get Another Look in a Covid-19 World: QuickTake

While Bailey asked banks to prepare for the possibility of negative rates, he’s consistently signaled that they aren’t necessarily the BOE’s favored policy tool. Instead, he’s focused attention on the Asset Purchase Facility through which the bank is buying 150 billion pounds ($206 billion) of bonds this year to help keep a lid on borrowing costs in financial markets.

The swiftness of the recovery in the U.K. pushed inflation above the BOE’s target unexpectedly in each of the past two months, prompting two policy makers to call for a debate in August on curtailing that stimulus program early. Despite that shift, banks have moved ahead with work on negative rates to give the BOE another policy option in the future.

Policy makers at the BOE are divided about whether negative rates would work:

  • Silvana Tenreyro told the Financial Times in April that they “have been effective, they work very well, and we should expect them to work well if they are needed”
  • Catherine Mann, who joins the committee in September, told lawmakers in Parliament that the policy “seems to distort household savings, to raise risk taking, and to reduce the profitability and stability of banks, pension funds, and insurers”
  • Deputy Governor Dave Ramsden said that while the BOE doesn’t rule out negative rates, quantitative easing is a “tried and tested tool.”

©2021 Bloomberg L.P.