An interest-rate increase should be considered good news for the U.K., rather than a source of fear, according to the Bank of England’s chief economist Andy Haldane.
Speaking to Sky News, Haldane said he’s among the majority of policy makers who believe that the economy is “nearing the point” where a reduction in some stimulus might be warranted. The BOE’s key rate is at a record-low 0.25 percent and an increase would be the first by the bank in more than a decade.
“This would be a sign of the economy healing, and therefore adjusting to that healing process,” he said. “So rather than being a source of fear or trepidation, this ought to be a good news story about the economy proving resilient.”
Haldane’s comments are the latest signal that the BOE is moving very close to tightening policy just over a year after it added stimulus in the wake of the Brexit vote. Governor Mark Carney and policy maker Gertjan Vlieghe have also said they see a rate increase in coming months, while two others are already voting for a hike.
There are still concerns that the economy has transformed since the referendum to leave the European Union last year. The pound’s drop has triggered faster inflation, and Carney has said that the economy’s potential growth has been undermined, raising the specter of damaging price pressures even at a lower rate of expansion.
Haldane was speaking on the eve of a conference at the BOE to celebrate 20 years of its independence. Carney will also address the gathering, as will Prime Minister Theresa May, who said in advance remarks that the new and defining characteristics of central banks are “openness and transparency.” Last year, she blamed ultra-loose monetary policy for widening inequality.
The hawkish shift at the BOE’s September meeting saw investors dramatically reprice their expectations for higher interest rates by November.
On pay growth, which has been stubbornly sluggish even with unemployment at a four-decade low, Haldane said the signs have become more “encouraging.”