Bank’s Haldane says interest rates will stay lower for longer

Inflation is currently well below the Bank’s 2 per cent target at 1.2 per cent

Interest rates are unlikely to rise until after next year’s general election as global growth fears push policymakers on to the “back foot”, the Bank of England’s chief economist signalled yesterday.

Financial markets are currently pricing in the first rate rise since July 2007 for August next year, much later than expected in the summer. And Andy Haldane dropped a heavy hint that the Bank’s Monetary Policy Committee is no rush to move, telling ITV that a first rise “somewhere in the middle of next year” was “not a bad bet”.

“If the last three months tell us anything, it’s that the data can change a lot, and when the data changes financial markets ... we on the MPC change our minds too.”

In a speech, Mr Haldane said he was “gloomier” over global growth prospects and saw far smaller risks in the pipeline from inflation. “This implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target,” he said.

Inflation is currently well below the Bank’s 2 per cent target at 1.2 per cent.

Mr Haldane updated his cricketing metaphor, first used in the summer, comparing financial policymakers to batsmen deciding whether to play bowling off the front foot – raising rates – or the back foot, keeping policy unchanged.

In June, Mr Haldane said the stronger economic news favoured a front-foot stance in the style of England batsman Ian Bell, but in a darkening global climate the chief economist is now moving on to the back-foot stance favoured by Bell’s team mate Joe Root.

Mr Haldane – who stressed that “cricketing statistics are not the sole basis for my views on the appropriate stance for UK monetary policy” – added: “Three months on, it is time to update the batting averages. Ian Bell’s batting average has remained at 45 – the front-foot recovery has remained on track. But over the same period, Joe Root’s [average] has risen to 51. Cricket statisticians and financial markets are agreed. While still a close-run thing, the statistics now appear to favour the back foot. On balance, my judgement on the macro-economy has shifted the same way.”

Britain’s economy was “writhing in both agony and ecstasy”, the economist warned. While the UK’s growth is set to be the fastest of any major economy this year, real wages and productivity are still in the doldrums.

Mr Haldane also warned that previous Bank forecasts of recovering wages and productivity had been consistently proved wrong and financial markets were increasingly pricing in the danger that growth would falter.

His warning on interest rates echoes that of James Bullard, president of the St Louis Federal Reserve, who this week called on the US central bank to continue its stimulus programme.