Monday 22 February 2021 9:03 pm

BoE policymaker: 'Five per cent interest rates won't return in my lifetime'

Bank of England policymaker Gertjan Vlieghe said he did not expect British interest rates to return to levels common before the 2008 financial crisis during his lifetime, due partly to the effect of an ageing population.

Vlieghe, 49, said longer life expectancies and more time spent in retirement had boosted demand for safe retirement assets, pushing down long-run interest rates across developed economies including Britain.

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Asked by students at Durham University when interest rates might return to the level of 4 per cent to 5 per cent common before the financial crisis, Vlieghe replied: “Maybe not in my lifetime.”

“Actually if you look at very long run data on interest rates, it’s the 1970s and 1980s that were unusual decades. Interest rates were unusually high then,” he added.

Bank of England officials have talked before of the long-run downward pressure on interest rates, but rarely look as far forward into the future as Vlieghe did.

The yields on 30-year British government bonds – a rough proxy for financial markets’ expectation of average interest rates – are just over 1%.

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“I think one of the really big drivers of that is demographics,” he said. “It doesn’t mean that interest rates don’t go up from current levels. It just means that when they go up, they don’t go back to 4 or 5 per cent.

The BoE’s main interest rate is 0.1 per cent, compared with 5.75 per cent on the eve of the 2007-08 financial crisis.