Bank of England’s ‘back-foot stance’ will keep interest rates low for longer

Interest rates will stay lower for longer as policymakers move onto the “back foot”, the Bank of England’s chief economist, Andy Haldane, bluntly warned today.

Haldane said he was “gloomier” over global-growth prospects and saw far-smaller risks in the pipeline from inflation.

“This implies interest rates could remain lower for longer — certainly than I had expected three months ago — without endangering the inflation target,” he said.

Inflation is currently well below the Bank’s 2% target at 1.2%.

The shift in stance from one of the Monetary Policy Committee’s swing voters is a clear signal that borrowing costs will remain at their 0.5% record low well into next year.

His remarks come at the end of a week in which volatile markets have pushed back their expectations for the first rate rise to August next year, well after the next general election.

He updated his elaborate cricketing metaphor first used in the summer, when comparing policymakers to batsmen deciding whether to play bowling off the front foot — raising rates — or the back foot, keeping monetary policy unchanged.

In June, Haldane said the stronger economic news favoured a front-foot stance in the style of England batsman Ian Bell, but in a darkening, global climate, the chief economist is now moving to the back foot stance favoured by Bell’s teammate, Joe Root.

Haldane — who stressed “cricketing statistics are not the sole basis for my views on the appropriate stance for UK monetary policy” — added: “Three months on, it is time to update the batting averages.

“Ian Bell’s batting average has remained at 45 — the front-foot recovery has remained on track. But over the same period, Joe Root’s has risen to 51.

“Cricket statisticians and financial markets are agreed; while still a close-run thing, the statistics now appear to favour the back foot. On balance, my judgement on the macro-economy has shifted the same way.”

Britain’s economy was “writhing in both agony and ecstasy”, the economist warned. While the UK’s growth is set to be the fastest of any major economy this year and inflation and borrowing costs were low, real wages and productivity are still in the doldrums,

Haldane also warned that previous Bank forecasts of recovering wages and productivity had been consistently proven wrong and financial markets were increasingly pricing in the danger that growth would falter.