The Bank of England's chief economist Andrew Haldane has warned that interest rates may need to be kept lower for longer due the deteriorating state of the world economy.
The BoE kept rates at their record lows of 0.5 per cent last week citing concerns over health of the global recovery, lacklustre wage growth in the UK and a series of geopolitical crisis across the world.
Haldane said the UK's agony index was at "painfully low" levels and has been five percentage points below its 1970-2014 average since 2008. Furthermore, he doesn't believe maintaining low rates will push the inflation rate above the BoE's target of two per cent.
However, the situation for the UK is better than others with Haldane pointing out the fall in unemployment from 8.4 per cent to six per cent and the fastest growth in the G7.
Speaking to the Kenilworth Chamber of Trade, Haldane said:
On balance, my judgement on the macro-economy has shifted the same way. I have tended to view the economy through a bi-modal lens. And recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English, I am gloomier.
The prospect of a prolonged period of deflation in the Eurozone has become a key concern of investors and policy makers. On Wednesday, the US Treasury Department warned Europe it could be facing a downward spiral.
Turning to the US, fears have been growing about the Federal Reserve's draw down of its quantitative easing programme. Yesterday, St. Louis Fed President James Bullard suggested that the end of QE should be delayed if necessary.