The Bank of England’s chief economist has “sympathy for savers” after rate cut
One of the Bank of England's senior policy-makers has said he has "enormous" sympathy for savers, after the central bank slashed interest rates in the wake of the Brexit vote.
Andy Haldane, one of nine members of the BoE's rate-setting monetary policy committee who voted in favour of cutting rates even further from their already historic low, said the action was necessary to support jobs and growth.
"Why was it needed? Because the EU referendum result has thrown up a dust cloud of economic uncertainty, making it harder for companies to plan, with potentially adverse implications for future investment and jobs," said Haldane, writing in the Sunday Times.
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The decision to lower rates to 0.25 per cent and embark on a new round of quantitative easing was a "shot in the arm for business and consumer confidence" said Haldane, chief economist at the BoE.
Already hard-pressed savers have been left with interest rates at their lowest in 322 years, with one investment manager warning that they now face a lost decade of returns.
"If anything things are getting worse, not just because savings rates will fall, but because inflation is forecast to rise, eroding the buying power of cash in the bank," said Hargreaves Lansdown senior analyst Laith Khalaf following the decision.
Haldane said: "In public policy, though, it is rarely possible to please everyone all the time. Understandably, some savers are feeling short-changed. Although I have enormous sympathy for their plight, the decision to ease monetary policy was, for me, not a difficult one."
However, Haldane said the action by the Bank of England was a "short-term balm" and could not "fully insulate Britain from the long-term effects of the decision to leave the EU".
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"This is a structural shift in the UK’s economic and trading regime, whereas monetary policy can offer no more than a short-term balm for economic uncertainty. More fundamentally, it cannot close other structural faultlines across the UK economy — for example, regional, socio-economic, inter-generational and housing faultlines," said Haldane, calling for further action to be taken by government in terms of policies to address such issues.
"Policy action, at source and at speed, is needed if the faultlines are to be closed," he said.
"Monetary policy cannot set different interest rates for different regions, for rich and poor, for old and young, for homeowners and renters. Other arms of policy are needed to close those faultlines. Doing so is necessary if the fruits of future recoveries are to be everyone’s."