Speedy rate hikes could knock shaky UK economy, former BoE chief economist warns
Former chief economist of the Bank of England Andy Haldane has cautioned his old colleagues against raising rates too fast, warning it might unsettle an economy that is on “unsteady legs”.
“I think given the extent of tightening we had during the course of last year, and the early part of this, and given the economy is still on relatively unsteady legs, now might be a time to pause and take stock for a bit,” Haldane said in an interview with the Sunday Times.
“There is still a lot of [monetary] tightening in the pipeline. And the last thing we want to do is take out the legs of a still very unsteady recovery,” he said.
Haldane, who left the Bank before the current hiking cycle, was previously considered one of the Bank’s most hawkish members.
The Bank of England has embarked on a vigorous campaign of monetary tightening in an attempt to combat rising inflation.
After inflation surged to double digits last year, the Bank has hiked rates eleven times in a row, taking the base rate to 4.25 per cent – its highest position since 2008. Higher interest rates take the heat out of an economy, helping to lower prices.
In a speech last week, Governor Andrew Bailey signalled that there might be further rate hikes to come.
The Bank is still “very alert to any signs of persistent inflationary pressures”, he said. “If they become evident, further monetary tightening would be required.” The next decision on interest rates will not take place until May.
While Haldane suggested a pause might be a better approach, he remained uncomfortable with the current rate of inflation.
“Core rates of inflation, including wage inflation, remain pretty punchy… I would say this is a problem that will linger a bit longer than any of us would wish.”
In the most recent reading, the rate of inflation increased to 10.4 per cent, while core inflation, which excludes more volatile components such as energy, rose to 6.2 per cent. Both markets and the Bank had expected inflation to fall below double digits.
Although inflation remains high, many market-watchers have suggested that central banks around the world should ease off further hikes until there is greater stability in the banking sector.
March was a volatile month for the banks as the collapse of Silicon Valley Bank sparked turmoil across the sector.