Britons should not fear higher interest rates, the Bank of England’s chief economist has told Sky News, fuelling speculation that an increase is imminent.
In an exclusive interview, Andy Haldane said that any rise in borrowing costs should be seen as a “good news story” – a sign that the economy was recovering.
His comments come amid speculation that the Bank’s Monetary Policy Committee will increase rates imminently.
Mr Haldane said: “In the September minutes in particular, a majority of the committee – of which I am one – said that we could be nearing the point where a reduction in some degree of monetary stimulus might be warranted in the coming months.
“And let’s be clear here: for me that would be a good news story. This would be interest rates getting back to normal, even if the new normal is different to the old normal.
“This would be a sign of the economy healing, and therefore adjusting to that healing process. So rather than being a source of fear or trepidation, this ought to be a good news story about the economy proving resilient.”
Since those September minutes, investors in the market have started to price in an interest rate increase as soon as November.
Mr Haldane said of the last minutes: “At the time of writing – and things have moved on a bit since then – interest rates in the market were a bit lower than we thought was likely to be necessary to get inflation back to our target on a sustainable basis.
“The market has moved a bit since then and next time we meet in November we’ll have to reassess how the economy looks and what market rates are then signalling.”
The Bank’s main rate of interest is currently at 0.25%, having been cut in the wake of last year’s referendum result.
But while some policymakers – including the Bank’s Governor Mark Carney – have dwelt mostly on the risks facing the post-Brexit economy, Mr Haldane pointed out that around the world economic productivity and investment was finally starting to build up meaningfully for the first time since the financial crisis.
He signalled that the squeeze on families’ living standards, whereby inflation has outpaced wages for much of this year, was likely to abate in the coming months.
“I think the signs are more encouraging on the pay front than they have been for some little while,” he said. “I think the key to unlocking pay will be signs of improvement in the economy’s productive potential.
“Higher pay needs to be paid for… so I hope we might be nearing the end of the tunnel on both pay and productivity.”
His comments came ahead of a conference the Bank is holding to mark 20 years since it was given independence to set interest rates.
Mr Haldane said that emphasising the benefits of independence was crucial, since trust in the Bank had been eroded during the years of crisis.
He said: “There is no question that the crisis dealt a blow to trust in public institutions and policymakers, and that’s no less true of central banks than other institutions.
“And a big challenge for us is to set about the process of rebuilding that trust, and that means engaging and that means speaking to people directly affected by our policies.”
The Prime Minister, who started her own career at the Bank, is due to appear at the conference, using her speech to underline the importance of the UK’s free market economy.
As well as launching a defence of free market economics, Theresa May will hint that the Government will invest more in public services in the coming years.
She will say: “That means continuing to deal with our debts, so that our economy can remain strong and we can protect people’s jobs.
“At the same time, it means investing in our vital public services, like schools and hospitals, which our successful management of the economy has made possible.
“To abandon that balanced approach with unfunded borrowing and significantly higher levels of taxation would damage our economy, threaten jobs, and hurt working people.
“Ultimately, that would mean less money for the public services we all rely on.”