Interest rates should not be raised due to ongoing uncertainty, MPC member says

Jonathan Haskel, member of the Bank of England's Monetary Policy Committee, believes that because there is so much uncertainty about the future, interest rates should not be raised at this point.

Related topics:  Finance News
Rozi Jones
19th July 2021
Jonathan Haskel BoE MPC
"It is important to remember that even if the future looks brighter, we are at the moment fighting to get back to where we were and we are not there yet."

He argues that the economy will be less damaged in the long term, than we feared. This is because fewer jobs have been lost, and companies have invested more in their businesses than we thought they would at the start of the crisis.

However, in a speech during an online webinar given at the University of Liverpool Management School, Haskel said that in the immediate term, "the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation".

Therefore, "for the foreseeable future, in my view, tight policy isn’t the right policy", he added.

Last week another MPC member, Dave Ramsden, said rising inflation could lead to a tightening of monetary policy, including a potential Bank Rate rise, in the near future.

However Haskel said "it is important to remember that even if the future looks brighter, we are at the moment fighting to get back to where we were and we are not there yet".

Haskel added: "The majority of the recovery to date has occurred under the protective blanket of the government employment schemes, loan schemes, tax relief and insolvency/eviction protections. Many of these have only just recently expired and more will expire by the autumn, notably the furlough scheme, the self-employed support scheme and the £20 Universal Credit uplift which are scheduled to end in September.

"The immense support for the economy over the pandemic looks like it might have averted deep scarring. The anticipation of an improved future might well feed into demand today and so add to inflationary pressure. But much of inflation will be high temporarily due to the low base from which prices are rising. In addition the economy is fully not recovered yet and faces two headwinds over the coming months: the highly transmissible Delta variant and a tightening of the fiscal stance. Against this backdrop, risk-management considerations lean against a pre-emptive tightening of monetary policy until we can be more sure the economy is recovering in a manner consistent with the sustained achievement of the inflation target. For now, tight policy is not the right policy."

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