Thursday 15 September 2016 5:31 pm

Critics round on Carney as ultra-low interest rates to last 13 years

Mark Carney faced growing disquiet from the financial community today, as critics of his post-referendum stimulus package sharpened their attacks on the Bank of England governor.

As the Bank's monetary policy committee (MPC) voted unanimously to hold interest rates at their record low of 0.25 per cent, a string of robust post-referendum data has led to concerns Threadneedle Street may have acted too hastily in early August. 

Critics said the Bank could be forced to reverse on its dramatic August stimulus package if inflation climbs sharply, but growth holds up, while economists also cited worries over the impact of lower rates on savers, pensioners and investors.

Read more: City A.M.'s Shadow MPC backs Carney's wait-and-see approach

Former MPC member Andrew Sentance said: "The long-term consequences of a prolonged period of low interest rates require more consideration from the Bank of England and other central banks.

"Interest rates around the western world are still stuck close to zero. That is not a healthy situation for the long-term growth of economies."

Michael Metcalfe at State Street warned: "Should the expected recession not materialise, monetary policy may need to reverse sharply to prevent inflation building."

Institutional investors and pensions groups have also criticised the Bank of England. "It is looking like the Bank of England jumped the gun," said Calum Bennie at pensions outfit Scottish Friendly. Guy Foster, head of research at investment managers Brewin Dolphin added: "The measures the Bank of England took in August seemed excessive."

Read more: Eight years from Lehman Brothers – what's changed?

Carney has defended the Bank's actions, and others state his decisive leadership at a time of political and economic instability helped shield the UK economy and restore confidence.

Despite the UK economy performing slightly better than the Bank expected, a majority of members on the MPC still believe they will need to cut rates even further later this year. Financial markets are pricing in a cut to 0.1 per cent in November.

A decade is a long time when it comes to monetary policy. Interest rates were above three percent for nearly the whole of the first decade of the 21st century (red line). Markets indicate they will never be higher than 0.5 per cent between 2010 and 2019 (blue line).

Analysts are also preparing for rates to stay glued to the floor until at least the end of the decade. Futures markets indicate interest rates will be at 0.25 per cent, or lower, for at least three years, only rising to 0.75 per cent by 2022. That would imply rates are set to be stuck at record low levels of below one per cent for a total of 13 years.

Some forecasters are even more down on the chances of the Bank ever raising rates. The Economist Intelligence Unit is forecasting no hike for at least five years and Societe Generale think the Bank will still be at 0.05 per cent by the end of 2020.

Read more: Financial markets rattled by Carney's big bazooka

Kallum Pickering, senior UK economist at Berenberg told City A.M: "As far as I can see out, interest rates will remain low. The reason is simple: Populations are getting older, demand for savings is higher and the appetite for debt after the Lehman crisis is lower.

"Unless we get a baby boom, or the economy starts to releverage, we probably won't get a reversal in these patterns."