United Kingdom

Bank of England economist Andy Haldane sounds the alarm over inflation

Andy Haldane sounded the alarm over rising inflation as he bowed out as chief economist at the Bank of England.

The 53-year-old, who leaves next week after 32 years at The Old Lady, voiced concerns about rising prices as the economy recovers from the Covid pandemic.

At his final meeting of the interest rate-setting monetary policy committee, he argued the Bank should shave £50billion off its £895billion money-printing programme.

Stepping down: The Bank of England's chief economist Andy Haldane has voiced  his concerns about rising prices as the economy recovers from the pandemic

But the Yorkshire-born father-of-three was outvoted by the other eight members of the panel who said the rise in inflation would be ‘transitory’, according to minutes of the meeting published yesterday.

The central bank has sought to play down fears that rock bottom interest rates and unprecedented levels of money-printing – or quantitative easing (QE) – could cause the economy to overheat and push prices higher as Britain bounces back from the coronavirus recession.

The Bank itself conceded that inflation ‘is likely to exceed 3 per cent for a temporary period’ in the coming months – pushing it well above the 2 per cent target.

But the MPC – bar Haldane – believes the increase will not last and does not therefore require action.

They face a difficult balancing act, however, as they weigh concerns about inflation against the need to let businesses recover from Covid-19 disruption.

Options open to the committee should it wish to curb rising prices include Haldane’s proposal to trim QE or raise interest rates. 

All nine members of the committee – which is led by governor Andrew Bailey – voted to keep rates at 0.1pc this week.

But Haldane dissented over the scale of the asset purchases made through QE and called for the Bank to take its foot off the peddle. 

He argued that ‘the rapidly improving economic outlook, and rising cost and price pressures, warranted a reduction in the degree of additional stimulus being provided to the UK economy at this meeting’, the minutes of the meeting show.

Andy Haldane, who leaves next week after 32 years at The Old Lady, voiced concerns about rising prices as the economy recovers from the Covid pandemic

The Bank runs the risk of above-target inflation in the longer term, he warned, and the problem could require sudden and painful measures such as big interest rate hikes if his colleagues turn out to be wrong.

Despite the warning, the MPC decided to stick to its guns, ‘monitor the situation and take whatever action was necessary’.

Rates were slashed to a record low of 0.1 per cent as the pandemic struck in a bid to support the economy. 

The Bank also resumed its massive QE bond-buying programme, purchasing huge sums of corporate and government debt with newly created money.

But with the economy bouncing back as lockdown restrictions ease, there is growing debate about how quickly this support should be scaled back.

Haldane’s vote against the current asset-buying programme was the second time in a row he has done so at an MPC meeting. 

He has consistently been one of the more bullish members of the MPC, predicting in February that the economy would bounce back ‘like a coiled spring’.

That stance has been at least partially vindicated with the Bank estimating the economy is 1.5 per cent bigger than it thought it would be just a month ago – and just 2.5 per cent below its pre-pandemic peak having shrunk by more than 20 per cent in the first half of last year.

Haldane will take up the post of chief executive at the Royal Society of Arts in September.

Bailey, 62, said he will be ‘sorely missed’. However, David Blanchflower, a former MPC member, has accused him of ‘wild guesses and wishful thinking’. 

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