Global growth fears, rising geo-political risks and a “weak pipeline” of inflationary pressures means the Bank of England can afford to keep rates lower for longer, reports The Telegraph.
Andy Haldane, who sits on the nine-member Monetary Policy Committee that sets interest rates, said a “gloomier” outlook for global growth and the risk of stagnation meant that he was unlikely to vote for an interest rate rise in the near-term.
Using the same cricket metaphor as four months ago when he said it would be better for the Bank of England to “play off the front foot” and raise rates sooner rather than later in order to keep a lid on inflationary pressures, Mr Haldane said on Friday that “the statistics now appear to favour the back foot”.
“Recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail,” he said. “Put in rather plainer English, I am gloomier.”
In a speech in Kenilworth, Mr Haldane added: “That reflects the mark-down in global growth, heightened geo-political and financial risks and the weak pipeline of inflationary pressures from wages internally and commodity prices externally. Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target.”
Mr Haldane said UK economy was “writhing in both agony and ecstasy” with strong growth, low inflation and high employment being tempered by weak wage growth and productivity.
“This has been a jobs-rich, but pay-poor, recovery,” he said.
He added that while the evidence suggested Britain’s recovery was “set to continue in the period ahead”, past experience suggested there was considerable uncertainty attached to the Bank’s forecasts.
“These suggest that the MPC, in common with every other mainstream forecaster, has been forecasting sunshine tomorrow in every year since 2008 – that is, rising real wages, productivity and real interest rates. The heat-wave has failed to materialise. The timing of the upturn has been repeatedly put back,” said Mr Haldane.
Inflation eased to 1.2 per cent in September, from 1.5pc in August, easing the pressure on the Bank of England to raise rates from a record low of 0.5 per cent. Some analysts now believe the Bank will keep rates on hold until next summer.
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