The Bank of England’s former chief economist said today that he would have already voted to cut interest rates given the UK’s slow growth rate and progress on taming inflation.
“I’d be cutting rates now, and probably would have been from the tail end of last year,” Andy Haldane, who was chief economist at the Bank until 2021, told Sky News.
Haldane said that inflation would be within “spitting distance” of the two per cent target by spring, but predicted the Bank would likely be too slow in cutting rates.
“The essence of monetary policy is to look ahead, not to where inflation is, but to where inflation will be,” he said. “The risk as inflation comes down at a fair old click is that the Bank might be a bit slow in cutting in the same way as it was a bit slow in raising [interest rates],” he said.
The Bank of England left rates on hold for the fourth time in a row at its latest meeting earlier this month, but policymakers opened the door to cutting interest rates later in the year.
Huw Pill, Haldane’s successor as chief economist, recently said that rate cuts were a “when rather than an if” given the progress on inflation.
Inflation has dropped from over 11 per cent in Autumn 2022 to four per cent at the end of last year. The Bank of England predicts it could reach two per cent by the second quarter of this year, although it will then pick up again in the second half of the year.
Markets think that rate cuts will begin in May with three cuts expected over the course of the year. Interest rates currently stand at a post-financial crisis high of 5.25 per cent.
The higher cost of borrowing has impacted growth, with new figures out later this week expected to confirm that the UK fell into a recession in the second half of last year.
“The balance of risks now is skewed towards growth rather than inflation,” Haldane said. “We need to support and stimulate growth”.