17th October 2014
The Bank of England is expected to keep interest rates lower for even longer as its chief economist admitted he was ‘gloomier’ about the prospect for the UK economy.
In a speech this morning Andrew Haldane said the UK economy was ‘writhing in agony and ecstasy’ as strong growth, low inflation and higher unemployment had run alongside stagnant wage growth and weak productivity.
‘The [Bank’s] Monetary Policy Committee, in common with every other mainstream forecaster, has been forecasting sunshine tomorrow in every year since 2008 – that is, rising real wages, productivity and real interest rates,’ he said. ‘The heat-wave has failed to materialise. The timing of the upturn has been repeatedly put back.’
He added: ‘This has been a jobs-rich, but pay-poor recovery.
The path the recovery has taken has left Haldane more pessimistic about the outlook for both the economy and interest rate rises.
‘I have tended to view the economy through a bi-modal lens. And recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English; I am gloomier,’ said Haldane.
Focusing on interest rates, Haldane said he was unlikely to vote for a rise in the near future.
‘Annual real interest rates – for example, rates earned by households on time deposits adjusted for consumer price inflation – are around zero. They have been near-zero for close to four years. Real deposit rates have not been that low since the 1970s, when inflation was in double digits,’ he said.