Interest rates 'as likely to fall as to rise'
Sterling falls 1.5 per cent after Bank of England chief economist says interest rates could go down rather than up
Even though Britain has been out of recession for more than five years and is the strongest growing economy in the G7, Andy Haldane, the Bank of England's chief economist, said yesterday that he believes that the next move in UK interest may be down rather than up.
Speaking in a non-official capacity at a business lunch in Rutland yesterday, Haldane said that he could see good reasons for interest rates to move in either direction.
Interest rates have been held at 0.5 per cent since March 2009 with most analysts predicting that they would begin to rise again some time in 2015 or early 2016, so the suggestion that they may be reduced again is "a pretty extraordinary prospect", The Guardian says.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Haldane said that if rates were to be set by a computer algorithm, rather than the Bank of England's Monetary Policy Committee (MPC) then "the optimal path for interest rates would involve them being cut in the short-run towards zero for around a year".
The BBC's economics editor Robert Peston described Haldane's comments as "big stuff".
The pound fell sharply in response to the comments falling as low as $1.4738 in afternoon trading – 1.5 per cent lower than at the start of the day.
So why does Haldane think that cutting interest rates is as likely a scenario as raising them? The reason is simple, says the Guardian. The UK has experienced two years of solid growth and falling unemployment, yet despite this, inflation has fallen. Financial markets have long been anticipating a rates increase, but forecasts have been consistently pushed back and gradually predictions of the eventual peak in rates have been lowered.
Some members of the MPC believe that the falling oil price has contributed to low inflation, as well as falling agricultural commodity prices and low wage growth.
The government's inflation target for the next two years is set at 2 per cent, but Haldane said: "The risks to inflation at that horizon are plainly two-sided. But my personal view is that these risks are skewed to the downside."
So when will interest rates rise again? "Not now, that’s for sure," said the Daily Telegraph's Jeremy Warner. "Maybe never. OK, so never say never, but very probably not for a long time."
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Melting polar ice is messing with global timekeeping
Speed Read Ice loss caused by climate change is slowing the Earth's rotation
By Peter Weber, The Week US Published
-
The Week contest: Stick guitar
Puzzles and Quizzes
By The Week US Published
-
'Sports executives ushered a fox into the henhouse'
Instant Opinion Opinion, comment and editorials of the day
By Harold Maass, The Week US Published
-
How did America avoid a recession in 2023?
Today's Big Question A downturn was inevitable. Until it wasn't.
By Joel Mathis, The Week US Published
-
Will the UK economy bounce back in 2024?
Today's Big Question Fears of recession follow warning that the West is 'sleepwalking into economic catastrophe'
By Chas Newkey-Burden, The Week UK Published
-
What rising gold prices can tell us about the economy in 2024
The Explainer Market hits all-time high, boosted by a weakening US dollar and rising global tensions
By Flora Neville, The Week UK Published
-
Would tax cuts benefit the UK economy?
Today's Big Question More money in people's pockets may help the Tories politically, but could harm efforts to keep inflation falling
By The Week UK Published
-
Interest rates: more ‘trauma’ for households
Talking Point Latest hike will cause ‘plenty of pain for borrowers’
By The Week Staff Published
-
Interest rates rise to 5.25% for first time in 15 years
Speed Read Inflation is slowing but at 7.9% it remains well above the Bank of England’s 2% target
By Julia O'Driscoll Published
-
Five options to get the UK back to 2% inflation
feature Some economists believe alternatives to raising interest rates are in the country’s best interests
By Sorcha Bradley Published
-
Why aren’t soaring interest rates bringing down inflation?
Today's Big Question PM pins blame for stubborn inflation on fixed-rate mortgages, but economists say the picture is more nuanced
By Arion McNicoll Published