Further rate rises risk recession, Bailey told
Bank of England’s former chief economist, who advises the Chancellor, says recovery is ‘unsteady’
ANDREW BAILEY has been warned that he risks plunging Britain into a recession later this year if the Bank of England’s rate-setters push ahead with further rises in borrowing costs.
Andy Haldane, who previously served as the Bank’s chief economist, has urged his former colleagues on the Monetary Policy Committee (MPC) to pause the current cycle of rate hikes. The Bank last week raised interest rates from 4.25pc to 4.5pc in its 12th consecutive increase.
“What I’d be doing in this situation is probably pressing the pause button, actually,” Mr Haldane told the New Statesman.
“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 added.
Analysts are overwhelmingly pricing in another 0.25 percentage point rise in June. A majority also expect a similar increase to follow in August, which would bring interest rates to 5pc.
Mr Haldane, who is now chief executive of the Royal Society of Arts, said that further rate hikes would come with great risks to the economy.
“It’ll be a somewhat tighter squeeze. It increases a bit the risk of us actually entering recession this year, there’ll be impacts for the labour market from joblessness,” he said.
The former Bank top official, who sits on Jeremy Hunt’s Economic Advisory Council but has also advised Labour, urged politicians to be bolder and borrow to grow the economy.
Mr Haldane accused both political parties of lacking ambition. “We need to be much more ambitious about how we think about fiscal policy generally.
“There’s not so much as a fag paper to put between Labour and the Government when it comes to fiscal rules and fiscal rectitude right now,” he said.
“That, for me, really lacks ambition at a time when it’s still, by any historical standard, incredibly cheap for governments to borrow.”
However he said his statement was not a “clarion call for fiscal profligacy”.
“Given the growth malaise we face, the climate crisis we are encountering, the social insecurities many within society face, what better time than now to make that investment? I would,” he said.
Britain has so far narrowly managed to avoid a recession, while the economy is expected to slowly return to growth in the second half of the year.
Mr Bailey, the Bank of England Governor, on Wednesday said that there are already signs of a wage-price spiral, which would make bringing inflation back down more difficult than expected.
Mr Haldane, who also served seven years on the Bank’s rate-setting panel, said there was scope to slow down socalled “monetary tightening”, however.
Meanwhile, UK Finance data showed how landlords have been hit by a surge in repossessions as rising interest rates and a tax crackdown hammer buyto-let investors.
Repossessions of buy-to-let properties rose by 28pc in the first three months of 2023 to reach 410 – the highest level since the start of the pandemic.
The number of buy-to-let landlords behind on mortgage payments also jumped by 16pc to 7,030.