A top Bank of England (BoE) official Wednesday vigorously downplayed the need for sub-zero interest rates in the UK, citing an economic recovery that has far outpaced the Bank’s expectations.
“At present, none of the conditions [that would necessitate negative rates] is, in my view, satisfied,” said Andy Haldane in a virtual speech to the Cheshire and Warrington LEP Economic Summit on Wednesday.
Haldane noted that many economists believed that the language deployed in minutes of the Bank’s September Monetary Policy Committee suggested a medium-term rate cut from the current record low of 0.1%.
However, “the minutes contained no such signal”, he said in prepared remarks.
The Bank has been undergoing a review of the efficacy of negative rates, and BoE Governor Andrew Bailey admitted on Tuesday that such policy has been effective in the eurozone. However, he admitted that the Bank’s assessment is far from complete. Haldane reiterated the sentiment, noting that “the operational work necessary to assess the feasibility of negative rates is likely to take a number of months”.
Haldane also touted the resilience of the UK economy, which has “recovered further and faster than anyone expected”, and expressed fears that good news “is being crowded out by fears about the future”, especially as the UK experiences rising Covid transmission rates in many areas of the country.
According to the chief economist, UK output has been expanding by 1.5% per week since May and could rebound to 3-4% below its pre-Covid level by the end of the third quarter. That implies an unprecedented expansion between July and September, as gross domestic product contracted by 21.8% in the first half of the year, according to data released earlier on Wednesday by the Office for National Statistics.
GDP slumped by a record 19.8% in the second quarter, better than the initially reported 20.4% decline. However, that still leaves the UK as one of the worst-performing advanced economies between April and June. The eurozone contracted by 11.8% over the same period, while US output fell by 9.1% (measured on a quarter-on-quarter basis).