BBC News (18th September) reported that its the Bank of England chief economist, Andy Haldane, has said the Bank of England may have to cut rates to combat low inflation, rather than raise them as its next move. UK interest rates have been held at a record low of 0.5{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} for more than six years.
He said in a speech that UK inflation may not pick up in the second half of the year and there are risks of fallout from emerging economies. Should those risks materialise, a rate cut would be a viable option.
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.
“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, adding that the case for raising interest rates was “some way from being made”.
“Were the downside risks I have discussed to materialise, 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.
According to Howard Archer of IHS Global Insight, Mr Haldane has “cemented his place as the arch-dove” on the Monetary Policy Committee (MPC). Mr Archer also remarked “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,” .