Interest rates are set to rise despite turmoil in the global economy… or are they? It seems officials at the Bank of England have different opinions.
Deputy governor Sir Jon Cunliffe has said the next move in borrowing costs will probably be up – although he added that the increases are expected to be ‘limited and gradual’.
Meanwhile, BoE chief economist Andy Haldane said interest rates may need to be slashed below zero to stave off another economic downturn.
He said Britain could require ‘radical’ action in order to keep the recovery on track, including further cuts in interest rates and even, in theory, the abolition of cash.
His comments put him at odds with Bank of England Governor Mark Carney, who this week hinted rates could rise in the coming months. Now Sir Jon Cunliffe has said the same.
The clash between Haldane and other members of the nine-strong Monetary Policy Committee muddies the outlook for borrowers and savers across the country.
Sir Jon said: “The economy is growing pretty much at pre-trend levels, about 2.5-2.75 per cent a year. That’s not spectacular, 3.5-4 per cent growth, but for the state of the world as it is now, it’s pretty good. If you look around, the UK and the US seem to be the only places that are growing strongly.
“We’ve had the sharpest drop in unemployment for 40 years, we’re starting to see pay come back, we’re starting to see productivity come back with a couple of readings that are a bit more positive, consumer confidence is at record highs and this is not a debt-fuelled consumption boom.
“All of that looks pretty strong for the UK economy and the Bank of England’s forecast is for the economy to keep growing at roughly those rates for the next couple of years. That’s a pretty robust picture.”
However, Cunliffe warned that ‘the external environment is a bit weaker than it was’ as the slowdown in China and emerging markets takes its toll.