LONDON—Raising interest rates too early could risk another
recession in the U.K., the Bank of England's chief economist Andy
Haldane planned to say in a speech Tuesday.
According to a prepared text of the speech, Mr. Haldane was to
argue that the central bank should keep the short-term policy rate
at its current record-low of 0.5% for the short-to-medium term.
"A policy of early liftoff could be self-defeating. It would
risk generating the very recession today it was seeking to insure
against tomorrow," Mr. Haldane was to say, according to the text.
Mr. Haldane is one of the nine members of the central bank's
interest-rate-setting Monetary Policy Committee.
Although inflation in the U.K. remains subdued, the Bank of
England expects it to return to 2% annual growth—the BOE's
target—by the second quarter of 2017. These forecasts are based
around the current belief by investors that the central bank will
begin raising interest rates in mid-2016.
However, some economists say recent improvements in wages could
create upward pressure on prices, which could drive the central
bank to act earlier.
Regular pay for British employees grew at the fastest pace in
more than six years during the three months to April, official
figures showed this month. Since economic growth in the U.K. has so
far not been matched by an increase in productivity—a key gauge of
the nation's economic potential—some Bank of England officials are
concerned inflation could mount faster than expected.
In the last meeting of the BOE's rate-setting body, officials
unanimously decided to hold off raising interest rates, but for two
members the decision was "finely balanced," minutes of the session
revealed.
By contrast, Mr. Haldane, who is generally considered as one of
the more dovish members of the rate-setting committee, planned in
Tuesday's speech to warn that even a modest interest-rate rise
could deliver bad news to already cautious consumers and risk
slowing economic growth in Britain. This in turn could force the
central bank to move interest rates back down.
"These self-reinforcing tendencies explain why the glue sticking
interest rates to their floor has been so powerful," Mr. Haldane
planned to say. According to the BOE's chief economist, recent data
on wages is likely an aftereffect of how weak pay growth has been
in the last two years. "Wages are not about to embark on a
rocket-propelled ascent," he was to add.
Mr. Haldane was due to give the speech Tuesday at the Open
University in Milton Keynes.
Write to Jon Sindreu at jon.sindreu@wsj.com
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