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The Bank of England risks making the UK’s recession worse unless it cuts interest rates soon, the central bank’s former chief economist has warned.
Andy Haldane, who left the Bank in 2021 after a 32-year stint, says his ex-colleagues should consider loosening policy to support the economy. Concerns have risen since the UK fell into a technical recession at the end of last year, GDP data released last Thursday showed.
Some economists have predicted that the economy is picking up this year. But, asked whether the BOE could worsen the recession unless it loosened policy soon, Haldane told Bloomberg’s UK Politics podcast: “I think that’s where the balance of risks lies, yes.
“For me the case for putting in place some upfront, early insurance on the monetary policy side is strong and strengthening, and I’m fearful we leave that insurance a little too late in the year.”
Before he left the BoE, Haldane warned – presciently – that an inflationary “tiger” had woken up and was prowling the economy. The Bank didn’t react, and only started raising interest rates in December 2021 – and has been criticised for this tardiness.
Haldane now points out that failing to cut rates in a timely fashion will compound the error. He tells Bloomberg’s UK Politics podcast: “It’s one thing to have missed inflation on the way up, which happened, it’s quite another to then have crushed the economy on the way down. That double blow to credibility is one if I were a central banker, in my old job, I would be looking to avoid.”
Earlier this month, the BoE left interest rates on hold at 5.25%, with just one of its nine policymakers voting for a cut (two wanted a rise). There was relief last week when UK inflation was lower than expected in January, at 4% (twice the Bank’’s target). But BoE governor Andrew Bailey then doused hopes that this could lead to faster cuts in interest rates.
The money markets are anticipating around three interest rate cuts this year, bringing the Bank rate down to 4.5% by December, with the first cut expected by June.
The UK property market is picking up this month, at least for sellers who price their homes correctly. Property portal Rightmove reports the average asking price for a home rose by 0.9% or £3,091 this month to £362,839. The increase means sellers are asking 0.1% more for their homes than a year ago, on average, as the fall in asking prices last year is reversed.
Rightmove reports that momentum is building in the market, with 7% more new listings coming to market than last year, and a 7% rise in the number of buyers making enquiries too. Agreed sales in the first six weeks of 2024 are 16% higher than over the same period last year, when the market was reeling from the jump in mortgage costs after the mini-budget of September 2022.
Rightmove’s Tim Bannister suggests sellers should exploit the situation while it lasts. He says: "Mortgage rates have fallen considerably from their peak and are now remaining broadly stable after the uncertainty of late 2022 and 2023. Momentum to move in 2024 is continuing to build, but prospective sellers mustn’t get carried away. Buyers now have more choice of property for sale and many are still very price-sensitive, with mortgage rates remaining elevated.
"Sellers who are serious about moving this year would be well-advised to ride this wave of increased buyer confidence with an attractive asking price before any pre-election jitters or unexpected events dampen the momentum."
Zoopla, the property search site, has also reported a pick-up in activity this month. However, although activity levels are higher, Rightmove reports it is taking the average seller 16 days longer to find a buyer than a year ago. That suggests that while “accurately and competitively priced” properties are being snapped up, overpriced ones are being shunned.
Also coming up today
The war between Brussels and "big tech" could be escalating, with Apple facing its first ever fine from the EU for allegedly breaking the law over access to its music streaming services. The FT reports that the penalty is in the region of €500m and is expected to be announced early next month. It follows an inquiry into whether Apple blocked apps from telling iPhone users there were cheaper alternatives to access music subscriptions outside the App Store.
The agenda
• 9am GMT: Spain’s trade balance for December
• 11am GMT: Israel’s Q4 GDP report (first estimate)
We’ll be tracking all the main events throughout the day ... |
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To revive Britain from recession the next government must get growth right 
The first step to our economic liberation is to tear up these crippling fiscal rules 
