Low-rate 'crutch' can hinder economy

Russell Lynch
Saturday 08 September 2012 13:52

Record low interest rates risk becoming a "long-term crutch" which hinders the repair of the UK economy, the Bank of England's chief economist has warned.

Spencer Dale's comments yesterday underlined the nervousness of the hawkish faction on the Bank's Monetary Policy Committee, which has held interest rates at 0.5 per cent since March 2009 and pumped £375bn into the recovery through quantitative easing.

Mr Dale argued, in a speech in Dublin, that drastic measures taken by rate-setters – as well as the lenders' relaxed stance – could be delaying the "rebalancing and restructuring that our economy needs", for example by allowing failing business to survive. "Monetary policy can and should provide short-term support in times of need, but it must avoid becoming a long-term crutch," he said.

Mr Dale said that if both supply and demand sides of the economy had been damaged by factors such as tight credit conditions, extra QE risked little more than fuelling inflation without boosting growth. "If your car's handbrake is stuck, putting your foot further down on the accelerator

won't get you very far before the car starts to overheat," he added.

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