* Negative interest rates effective outside UK - Tenreyro * UK bank lending not so different as to damage negative rate case * Near-term outlook worse, longer-term recovery surer than in Nov * QE most helpful at times of market turmoil, not a growth panacea (Adds comments on economic outlook) LONDON, Jan 11 (Reuters) - Bank of England policymaker Silvana Tenreyro said on Monday that cutting British interest rates below zero could boost the economy by more than expanding bond purchases, a view that divides opinion at the central bank. Britain’s economy is facing severe economic headwinds from a new surge in COVID deaths caused by a more infectious variant that started to spread widely last month, but is rolling out a vaccine faster than other European countries. “Altogether, this will imply a worse near-term outlook than anticipated in November, before the economy starts a now less uncertain recovery later in 2021,” Tenreyro said, warning there could be “significantly more” job losses ahead. The BoE is currently looking at the technical feasibility of negative rates for Britain’s financial system, and is expected to publish its views after next month’s policy meeting. Tenreyro, who has stated for months that negative rates could potentially be helpful, said she was not prejudging the outcome of the BoE’s review, or whether the COVID-ravaged economy currently needed further central bank stimulus. Since March 2020 the BoE has cut its interest rate to a record-low 0.1% and doubled its bond purchase target to 895 billion pounds ($1.2 trillion). The BoE’s chief economist, Andy Haldane, and one of its deputy governors, Dave Ramsden, have said more asset purchases would be their go-to tool if more stimulus is needed. But Tenreyro said she did not believe this would be very effective at tackling general weakness in the economy, as opposed to quelling the type of turmoil that roiled bond markets in March 2020 at the start of the pandemic. “I believe that quantitative easing is important in the event of market dysfunction, for example, but also that its power mainly lies in helping offset the disruption, rather than providing net additional stimulus to the economy,” she said. Tenreyro pushed back against arguments that negative interest rates would be ineffective in boosting demand, or would cause significant damage to banks’ profitability. “Monetary policy transmission has worked effectively under negative rates in other countries, with some of the evidence pointing to more powerful effects,” she said in an online speech hosted by the University of the West of England. Japan, the euro zone and Switzerland, as well as Sweden and Denmark, have cut interest rates below zero in recent years. Rates in Britain could potentially fall below -0.75% without running into some of the constraints of a negative interest rate policy, she said in a question and answer session after her speech. While negative interest rates narrow the difference between the rates at which banks can borrow from depositors and lend to borrowers - limiting profits - Tenreyro said this was outweighed by a boost to the economy which reduced banks’ loan losses. Some analysts say British banks rely more on customer deposits than their overseas counterparts, increasing the cost of negative rates but Tenreyro did not find this argument convincing. “At worst, in my view, this could only make bank-lending channels slightly less powerful,” she said. (Reporting by David Milliken and Andy Bruce; Editing by Toby Chopra)