Interest rates could be cut - BoE chief economist

Governor Carney has signalled that rates should rise around the turn of the year. Picture: Getty
Governor Carney has signalled that rates should rise around the turn of the year. Picture: Getty
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The Bank of England may need to cut interest rates as its next move rather than raising them, according to its chief economist.

Andy Haldane argued that ultra-low inflation and slowing growth - which could be further threatened by weakening, emerging economies - meant that there may be a need to “loosen” monetary policy.

His stance contrasts sharply with comments by the Bank of England governor Mark Carney earlier this week, who reiterated that a decision on the timing of a rate hike would “come into sharper relief around the turn of the year”.

A rise in interest rates would add to repayment costs for borrowers but provide some relief for savers whose nest eggs have been eroded since rates were slashed to 0.5 per cent more than six years ago.

Mr Haldane’s comments come after US policy-makers decided not to raise rates in the wake of recent market turmoil, prompted by fears of a slowdown in China.

He said: “The case for raising UK interest rates in the current environment is, for me, some way from being made.”

Mr Haldane added that were risks to the economy to materialise, “there could be a need to loosen rather than tighten the monetary policy reins as a next step to support UK growth and return inflation to target”.

His position puts him at odds with some of his colleagues on the Bank of England’s nine-member Monetary Policy Committee (MPC).

They voted 8-1 to leave rates on hold at their last meeting, with one member calling for a hike to 0.75 per cent.

Others were apparently ready to do so but for events in China - and despite inflation being at zero, well below the Bank’s two per cent target.

“Hawks” on the MPC think that the upturn in the economy and rising wages point to inflationary pressures building.

But Mr Haldane - who has in the past made the case for rates being cut - said in a speech to business leaders in Portadown in Northern Ireland that the balance of risks to inflation and growth was “skewed squarely and significantly to the downside”.

He said that while the UK recovery remained on track, there were “straws in the wind to suggest slowing growth into the second half of the year”.

Surveys of economic output suggested UK growth had been “on the gentlest of downward glide paths since early 2014”, he added.

Inflation has been hovering around zero for months and even stripping out the impact of volatile food and energy prices, it remains at about one per cent, still one per cent shy of the Bank’s target, Mr Haldane pointed out.