Bank of England could cut interest rates again, states chief economist

The Bank of England could have little option but to cut UK interest rates again to combat low inflation, according to its chief economist, Andy Haldane.

Forecasts suggest UK inflation is not likely to pick up in the second half of this year and Haldane confirmed there are subsequent risks of fall-out from emerging economies.

In the event those risks materialise, the only viable option would be another cut to interest rates that have already been held at a record low of 0.5 per cent for the last six years.

A softening of employment figures and weakening surveys on manufacturing and construction output indicate that UK inflation might not recover as expected before the year is out.

Mr Haldane also fears problems in emerging markets could also put the shackles on UK growth and the headwinds from those economies would appear unlikely to ease any time soon.

Haldane recalls recent events in China and Greece as “the latest leg of what might be called a three-part crisis trilogy”.

“The balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside,” added Haldane.

“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.”

Nevertheless, former Monetary Policy Committee member, Andrew Sentance has been particularly sceptical of Haldane’s analysis.

“Cutting interest rates from all-time low is unnecessary. Doing so when economy in 7^th year of recovery totally foolish,” tweeted Sentance.

“Andy Haldane seems to have no concept of longer-term need for interest rates to strike balance between savers and investors.”

Mr Haldane’s views also seem to be at odds with Monetary Policy Committee member, Ian McCafferty, “who has voted for an interest rate hike from 0.5 per cent to 0.75 per cent at both the August and September MPC meetings”.

Date published 25 Sep 2015 | Last updated 25 Sep 2015