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UK economists debate on further interest rate cuts to combat low inflation

Saturday, September 19th 2015 - 07:15 UTC
Full article 4 comments
“The balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside” Haldane said. “The balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside” Haldane said.
“Sorry to say but Andy Haldane's spouting rubbish here” tweeted Sentance. “Cutting interest rates when economy in 7th year of recovery totally foolish.” “Sorry to say but Andy Haldane's spouting rubbish here” tweeted Sentance. “Cutting interest rates when economy in 7th year of recovery totally foolish.”
Bank of England has held UK interest rates at a record low of 0.5% for more than six years. Bank of England has held UK interest rates at a record low of 0.5% for more than six years.

The Bank of England may have to cut rates to combat low inflation, rather than raise them as its next move, its chief economist Andy Haldane has said. UK inflation may not pick up in the second half of the year, and there are risks of fallout from emerging economies, he said in a speech.

 Should those risks materialize, a rate cut would be a viable option, he said. UK interest rates have been held at a record low of 0.5% for more than six years.

Softening employment figures and weakening surveys on manufacturing and construction output suggested growth in the UK could slow in the second half of the year and inflation might not pick up as expected.

Furthermore, problems in emerging markets could be a drag on UK growth and the headwinds from those economies were unlikely to abate any time soon, Mr. Haldane added. He described recent events in Greece and China as “the latest leg of what might be called a three-part crisis trilogy.”

“The balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside,” Mr. Haldane said.

The case for raising interest rates was “some way from being made”, he added.

“Were the downside risks I have discussed to materialize, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target,” he said.

However, former Monetary Policy Committee member Andrew Sentance was scathing about Mr. Haldane's analysis.

“Sorry to say but Andy Haldane's spouting rubbish here,” he tweeted. “Cutting interest rates from all-time low is unnecessary. Doing so when economy in 7th year of recovery totally foolish.”

“Andy Haldane seems to have no concept of longer-term need for interest rates to strike balance between savers and investors,” he added.

According to Howard Archer of IHS Global Insight, Mr. Haldane has “cemented his place as the arch-dove” on the Monetary Policy Committee (MPC).

“While there is currently considerable uncertainty as to when the Bank of England is likely to start raising interest rates, Andy Haldane's stance looks isolated within the MPC,” said Archer.

His views seem to be at odds with fellow MPC member Ian McCafferty, “who has voted for an interest rate hike from 0.50% to 0.75% at both the August and September MPC meetings”.

“Furthermore, Martin Weale and Kristin Forbes have both indicated their belief that interest rates will need to rise sooner rather than later,” he added.

Categories: Economy, Politics, International.

Top Comments

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  • ChrisR

    Haldane you are a twat!

    Do you want to put the UK in the same downward spiral that Japan has been experiencing for years?

    Well the rest of us don't. Idiot.

    He's not an argie clone is he?

    Sep 19th, 2015 - 05:45 pm 0
  • Conqueror

    @1 Can you state your qualifications please?
    https://en.wikipedia.org/wiki/Andy_Haldane

    Sep 19th, 2015 - 07:01 pm 0
  • ChrisR

    @ 2 Conqueror

    I am pleased to say that my education in 'economics' has been limited to a number of years during which I was being trained as a professional engineer. I also completed the Executive Course at Manchester University, The Manchester Business School.

    It was during this course that I was told by one of the lecturers how you can usually spot an economist: he / she will ALWAYS give you at least two options and they will almost never give you a straight answer.

    Have YOU read the link and if you have are you impressed, it seems you might be? You do realise this guy has never had a real-world job, don't you?

    He left university and went straight into the BofE! I doubt he could even comprehend running a large company and making decision which might cost the jobs of hundreds of workers. In fact, if he is typical of the rest of the BofE civil servants I doubt if he has ever met a worker.

    Do you even understand why the Japanese economy is in the shitter, because it doesn't seem so if you think Haldane has a clue what he is on about?

    BTW, weren't YOU a civil servant?

    Ha, ha, ha.

    Sep 20th, 2015 - 12:54 pm 0
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