Leaving interest rates on hold for too long risks deepening the UK’s recession, the Bank of England’s former chief economist has said.
Asked on Bloomberg whether higher interest rates risked worsening the UK’s recession, Andy Haldane said: “I think that’s where the balance of risks lies, yes.”
“For me the case for putting in place some upfront, early insurance on the monetary policy side is strong and strengthening, and I’m fearful we leave that insurance a little too late in the year,” he added.
Figures out last week confirmed that the UK fell into a shallow recession at the end of last year after a larger than expected 0.3 per cent fall in output in the final quarter.
However, most economists think this will do little to change the Bank of England’s thinking on when to start cutting interest rates.
Speaking prior to the publication of the figures, Andrew Bailey, governor of the Bank, said he would not put “too much weight” on whether the UK was in a shallow recession.
Markets think the Bank will start cutting rates in late spring or early summer, with the Bank Rate expected to hit 4.5 per cent by the end of the year.
But Haldane warned the central bank that waiting too long could have harmful consequences.
“It’s one thing to have missed inflation on the way up, which happened; it’s quite another to then have crushed the economy on the way down,” he said. “That double blow to credibility is one, if I were a central banker in my old job, I would be looking to avoid.”