The Bank of England was yesterday urged by its former chief economist not to hit the economy with interest rate hikes as firms grapple with a ‘sequence of nasties’.
Andy Haldane said that a series of rate rises predicted by financial markets was ‘relatively unlikely’ even as the Middle East crisis threatens to drive inflation higher.
The energy shock comes on top of Labour tax hikes that are already crippling the private sector at a time when the economy is flatlining.
Haldane told ITV News: ‘It comes off the back of a sequence of nasties. If you’re a business right now, people are expensive, taxes are high.’
The comments were echoed by Alan Taylor, a member of the Bank’s Monetary Policy Committee, who said in a speech in New York that he saw a ‘high bar’ to any rate hikes.
As oil prices soared back towards $109 a barrel yesterday, traders were betting there would be three Bank rate hikes, taking it from 3.75 per cent to 4.5 per cent by Christmas.
Inflation threat: Bank of England chief economist Andy Haldane (pictured) said that a series of rate rises predicted by financial markets was ‘relatively unlikely’
Latest fears of a prolonged war in Iran also sent the FTSE 100 down 1.3 per cent, or 134.67 points, to 9972.17.
Soaring energy prices have drawn comparisons between the crisis and the spike seen after Russian tanks rolled into Ukraine in 2022, sending inflation spiralling towards double figures.
Back then, the Bank of England was criticised for being too slow to put up rates.
But Haldane said: ‘This time is different. Then demand was strong, now demand is weak. I’m not expecting the same inflation pressures remotely that we had back then.
‘So there’s no immediate cause for the Bank of England to be slamming on the brakes with higher interest rates.’
Back in 2022, inflation stood at more than 6 per cent – almost twice its current level – even before the Ukraine war erupted. Bank rate stood at 0.5 per cent, compared to 3.75 per cent today.
Haldane acknowledged that if energy prices ‘take a further leg north’, that would be ‘a game changer’ for the likely path of rates. ‘But for now, growth in the economy calls for lower interest rates, not higher ones,’ he said.
Elsewhere, Bank deputy governor Sarah Breeden said she saw less risk of so-called second-round effects – when inflation leads to wage rise demands and then more inflation – than in 2022 due to greater labour-market weakness.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Freetrade
Freetrade
Investing Isa now free on basic plan
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.