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There is no scope to cut UK interest rates “anytime soon”, a Bank of England policymaker has warned, echoing warnings from senior officials that borrowing costs will remain at or near their current level of 5.25 per cent for an extended period.
Jonathan Haskel, an external member of the central bank’s Monetary Policy Committee, said on Tuesday that it could take at least a year for the labour market to loosen to the extent that had been typical before the pandemic.
Although inflation had fallen rapidly, to 4.6 per cent in October, it could prove persistent if pressures in the labour market continued, while productivity growth also remained “in the doldrums”, he told an audience at Warwick university.
As a result, he said there was no scope “anytime soon” to lower borrowing costs, which would instead “have to be held higher and longer than many seem to be expecting”.
Haskel’s comments follow recent warnings to markets from other BoE officials, including governor Andrew Bailey and chief economist Huw Pill, that they should not expect cuts in interest rates to come quickly.
Between the end of 2021 and August this year, the BoE raised rates to a 15-year high of 5.25 per cent in a bid to tame high inflation. At its latest meetings in September and November, the MPC voted by a majority to keep rates on hold, but Haskel voted to continue raising them.
In his speech, Haskel defended the central bank’s record on fighting price growth following fierce criticism by an influential group of peers.
The House of Lords economic affairs committee on Monday said the BoE had relied on “inadequate” forecasting models as inflation took hold in 2020 and 2021, and that its senior ranks lacked the “diversity of views” needed to challenge the orthodoxy that an energy price shock would be transient.
But Haskel maintained that it was “perfectly reasonable, given what policymakers knew at the time” to view the initial burst of inflation caused by energy prices and shortages as transient.
The speed at which the labour market was tightening became clear only at the end of 2021, he said, and the BoE had then begun raising rates well ahead of the US Federal Reserve and European Central Bank. It was only in 2022 that food prices became a significant factor, said Haskel.
Dave Ramsden, BoE deputy governor, also struck a hawkish note on Tuesday, saying that high services price inflation was a sign of price growth becoming “much more homegrown”.
He told Bloomberg TV it would therefore be “really challenging” to squeeze inflation out of the system, adding that the BoE still thought price growth would be stubbornly high throughout 2024 because of high wages.
Appearing before the House of Commons Treasury committee, officials from the Office for Budget Responsibility on Tuesday endorsed the government’s claim to be supporting the BoE in its fight to control price rises.
Discussing Jeremy Hunt’s Autumn Statement, Richard Hughes, chair of the fiscal watchdog, said the impact of the chancellor’s latest policy measures was not material to the inflation outlook.
