Bank of England must start thinking about cutting rates, says former chief economist
The Bank of England needs to start considering when it will begin to lower interest rates following the surprisingly fast fall in inflation, a former chief economist at the Bank of England has said.
In an interview with the Daily Mail, Andy Haldane, chief economist from 2014 until 2021 said: “We are entering a period with a strong bias towards easing”.
“The narrative ought to be in that direction,” he added.
While Haldane suggested it “might be premature” to start cutting interest rates immediately, he cautioned against any further rate increases.
At the last meeting of the rate-setting Monetary Policy Committee, three members of the nine-strong body voted in favour of a further hike.
But Haldane said further rate hikes are “not what the economy needs, because of that fearfulness about jobs, about incomes, about mortgage payments, about rental payments”.
So far policymakers at the Bank have ruled out cutting interest rates any time soon. But after inflation fell to its lowest level in two years in November, traders now think that the Bank will rapidly reverse its historic bout of monetary tightening.
Nearly a third of economists surveyed by Morning Wire expected that the Bank would start cutting rates in March while around a quarter think the Bank will wait until May.
By the end of this year, markets think the Bank Rate will stand at four per cent. It currently sits at 5.25 per cent.
Haldane said that if growth slows and inflation remains low – around three per cent – then “the right thing for the Bank to do is to ease off the brakes, to get growth back up”.