Bank of England chief economist Andrew Haldane has put himself on a collision course with Mark Carney, the Bank’s governor, by suggesting policymakers may be forced to slash interest rates to zero in the coming months to tackle the threat of deflation.
Striking a markedly different tone to Carney, who told the House of Lords economic affairs committee last week it would be “extremely foolish” to cut rates now, Haldane used a speech to a business club in Rutland to lay out reasons the nine-member monetary policy committee should be concerned that inflation has “dropped like a stone”.
“On the MPC’s central view, inflation will remain close to zero in the near-term, before rising to reach the inflation target over a two-year horizon. The risks to inflation at that horizon are plainly two-sided. But my personal view is that these risks are skewed to the downside,” Haldane said. “In my view, that means policy needs to stand ready to move off either foot in the period ahead.”
In the City, the FTSE100 closed at a fresh record high of 6962 after the news, as investors welcomed the possibility of a rate cut. Nerves were also soothed by Federal Reserve chairman Janet Yellen’s reassurances on Wednesday that she would not rush to raise US interest rates. Sterling lost 2c of its value against the dollar over the day, to trade at $1.4740.
