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UK interest rates to remain low

Article By: ,  Financial Analyst
June 30, 2015 2:36 PM

Interest rates will be staying low for the immediate future, according to the Bank of England's chief economist.

Andy Haldane, who sits on the Bank's committee of interest rate setters, has admitted that recent attempts to bring interest rates back up have been unsuccessful. Despite "vigorous attempts to dislodge them," he says, the rates have remained at unprecedentedly low levels.

Currently, financial markets expect UK interest rates to rise from their historic lows of 0.5 per cent to just 2.5 per cent over the course of ten years.

Mr Haldane called this "an extraordinarily slow pace of money tightening, at least by historical standards". He also warned that trying too hard to raise rates could actually make the situation worse. He believes that with the passage of time, the rates will take care of themselves.

"That is one reason why the glue holding interest rates to their floor has remained so strong. And it is why I feel no immediate need to loosen that glue," he explained.

The Telegraph reports that in the past, Mr Haldane has admitted he is one of the Bank's most 'dovish' interest rate setters. He has indicated that he might prefer interest rates to be lower rather than higher. In addition, he has recommended that the Bank should be prepared to cut interest rates if it looks like low inflation is becoming a problem.

As well as the "glue" that is holding interest rates at such low levels, Mr Haldane has also indicated that the low interest rates may have been helped along by deficient western investment and excess savings in the east.

"Some have interpreted their own downward drift as evidence of secular stagnation," he said, explaining the theory that economies will grow more slowly in the future than in the past. 

Still wary of economic recovery

While there have been positive steps for the economy in recent months, Mr Haldane has implied that there are still reasons to be wary about economic recovery.

For example, despite signs of wage growth in the year to April – and pay rising at its fastest since the economic crisis, he warned that "one swallow does not a summer make".

And, while analysts have shown evidence that pay growth might be even stronger than anticipated, his response was: "Wage growth is causing some fluttering, but not in this dovecote."

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