The Bank of England should stop raising interest rates because it risks choking Britain’s economic recovery, a top adviser to chancellor Jeremy Hunt has said.
Andy Haldane – a former chief economist at the central bank, who is now a member of Mr Hunt’s Economic Advisory Council – said it was time to “press pause” after 12 consecutive interest-rate rises.
Bank of England governor Andrew Bailey has warned that the Bank will keep on hiking the base rate if inflation proves stubbornly persistent, after raising it to 4.25 per cent last week.
“What I’d be doing in this situation is probably pressing the pause button, actually,” Mr Haldane told The New Statesman – warning of the consequences for mortgage-holders of increasing the rate.
“I think there’s a lot of tightening in the pipeline already, most of which we haven’t yet seen the full effects of, as it hits people’s mortgage payments later in the year. The recovery is still on pretty unsteady legs,” he said.
The adviser to the chancellor suggested that the Bank’s approach could have a negative impact on growth, and could even put Britain on course for recession.
“It’ll be a somewhat tighter squeeze,” said Mr Haldane. “It increases, a bit, the risk of us actually entering recession this year – there’ll be impacts for the labour market from joblessness,” he added.
“I personally think we can afford to take a bit more time to get inflation back down to target. That would be a price worth paying for keeping the economy moving and jobs in place.”
It comes as one of the senior economists at the Office for Budget Responsibility (OBR) warned that the era of huge house-price rises in the UK could be almost over.
David Miles, who previously served on the Bank’s Monetary Policy Committee, said homeowners would not see the “massive” uplift in values that they have enjoyed in recent decades.
“If anything, this unusual age of massive rises of house prices may be nearing an end,” said the OBR official. “Those forces driving them up are going to be much weaker, I suspect, in the next 40 years than they have been in the past 40 years.”
Mr Bailey insisted on Thursday that the Bank of England had not fuelled the explosion in house prices after the financial crisis in 2008 and 2009.
The governor told the Treasury select committee that the big increase in property prices took place in the decade building up to 2007 – acknowledging that it had helped to create a “greater degree of intergenerational inequality”.
But Mr Bailey said the Bank’s quantitative easing (QE) programme – the buying up of bonds in order to lower borrowing costs – had not inflated house prices. “Real asset prices have not increased during QE,” he told MPs.
Sir Keir Starmer raised eyebrows this week when he said that a Labour government would try to get house prices falling by boosting the supply of new homes. The Labour leader later clarified that he wanted house prices to fall in relation to wages.
