The Bank of England may need to cut interest rates in order to prop up UK growth, chief economist Andy Haldane has warned.
In a speech to the Portadown Chamber of Commerce in Northern Ireland today, Haldane said the case for raising rates is “some way from being made”, before raising the prospect of a possible cut from the current level of 0.5 per cent.
He said: “With subdued world growth and prices, and a sharp appreciation of sterling whose effects in lowering imported prices have yet fully to pass-through, I am not as confident as I would like that one percentage point of additional nominal pick-up will be forthcoming over the next two years.
“In my view, the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside.
“Against that backdrop, the case for raising UK interest rates in the current environment is, for me, some way from being made. One reason not to do so is that, were the downside risks I have discussed materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target.”
Earlier this month the Office for National Statistics confirmed UK inflation had returned to 0 per cent in August, having risen to 0.1 per cent the previous month.
Across the Atlantic US authorities yesterday voted against raising interest rates, keeping federal targets at 0-0.25 per cent.
Of the nine members of the Federal Open Market Committee, only Richmond Federal Reserve Bank president Jeffrey Lacker voted for an increase, arguing for a 25 basis point rise.
The vote means that US interest rates have now been kept at the same level since December 2008.