The Bank of England has indicated that it may need to maintain low levels of interest rates for an extended time, much longer than previously intimated out of fears that the British economy might slip once again into a long-term economic slump, according to Andrew Haldane, Britain’s chief economist.
Apparently, Haldane is not optimistic about the British economy’s outlook for the next fiscal quarter, although he does not lay the blame for this languishing economic situation at the feet of Britain, he believes that the cause for this lack of luster economically lies in the overall global economy that looks grim world-wide due to financial and political risks as well as slow growth in global wages.
After Haldane’s press conference, British Sterling fell one half cent against the dollar as well as falling against the Euro. Haldane indicated his desire to be proactive in making changes and used a cricket analogy saying that he wanted to be “on the front foot, rather than the back foot” with regard to raising interest rates.
While market indicators and policy predictors had expected the first BoE rate hike to come sooner, the newest predictions are looking for the next rate rise to occur toward the end of next year due to low stock market performance globally.
“If there is genuine uncertainty about the path of the economy, the optimal policy response may be to avoid the worst outcomes,” asserted Haldane. This play-it-safe approach is typical of Haldane’s management style who favors a conservative approach to economic matters in general.
Haldane commented that the British economy was “writhing in both agony and ecstasy,” meaning that there are sectors that are experiencing unprecedented gains, while at the same times there are other sectors which are failing miserably. Overall, according to Haldane the economic outlook in the near future is rather bleak.
To complicate the economic situation even more, Britain has experienced some wide disparities in wage trends. Additionally, the quantity of middle-class jobs has fallen and continues to fall, yet there are more low-income jobs than ever before. Some speculation has arisen as to whether these full-time jobs have converted themselves into lower income jobs. However, at the same time, high income jobs in Britain have increased by more than 20 percent.
Haldane suggests that the economic changes that Britain has experienced are based in the higher levels of immigration, harsher benefit rules, combined with an aging population with old age pensioners remaining in the workforce for longer periods of time.