The Bank of England would likely cut rates to –0.1% in the middle of 2021 if the U.K. leaves the European Union without a new trade deal in place, he said.

While more bond buying and fiscal stimulus would be the first lines of defense in that case, the economy would likely still need more of a boost. Monetary policy could have an important role to play during a big supply-chain disruption because fiscal policy might be less effective.

The risk of “a hard exit from the EU’s single market and customs union at the end of the year is too soon and too likely to ignore,” Schulz said in a note. “Negative rates could prove particularly effective in reducing bankruptcies, protecting rather than undermining monetary financial institutions.”

The comments add to a growing debate over whether the BOE should, for the first time, take borrowing costs negative. U.K. officials have until Dec. 31 to strike a free trade agreement with the EU, and talks have been deadlocked ahead of a key summit this month.

The central bank said U.K. output could plunge 14% this year in a scenario published last month, and policymakers are considering all options to revitalize growth. A hard Brexit could damp the recovery that officials are expecting.

A separate note from RBC said the BOE is likely to cut rates below zero in the second half of this year, most likely in November, after expanding its bond-buying program by 200 billion pounds ($250 billion) in June. U.K. officials can draw on six years of experience with negative rates from the European Central Bank, and their review of negative rates isn’t likely to make a strong case against them.

Governor Andrew Bailey has struck a conciliatory tone on whether negative rates might be needed. Last week, Michael Saunders, a fellow policymaker on the nine-member Monetary Policy Committee, said he wouldn’t rule the policy in or out.

Still, there will likely be resistance to negative rates within the MPC, Schulz said. They would therefore probably take some preparatory steps before taking the benchmark rate even lower.

For instance, they could take only the rate on the Term Funding Scheme, a loan program for banks, below zero. There’s a chance the MPC announces such a move at its next announcement on June 18, Citi’s Schulz said.

The BOE could also make preparations for tiering and reassess the lower bound.

One danger is that negative rates backfire. With bank lending so important to keeping businesses and households going during the current crisis, there’s a risk that they tighten financial conditions by reducing bank profit margins.

While building societies have been pointed out as a problem area for negative borrowing costs in the past, that risk seems to have fallen in recent years, Schulz said. Some smaller banks with a large exposure to mortgage lending could still be affected, but the immediate risks might be more manageable, he said.

And the lowering of real neutral rates might make negative borrowing costs hard to avoid. The interest rates that keep supply and demand, savings, and investment in balance have been trending down over the past three decades. Those trends have also been exacerbated in the U.K. because of sluggish productivity growth, depressed investment, and Brexit uncertainty.

A lower neutral rate “could now make negative interest rates inevitable if monetary policy is to avoid dragging on demand,” Schulz said.