BOE's Haldane Says Withdrawal Of Some Stimulus Needed 'Relatively Soon'

By Paul HannonFeaturesDow Jones Newswires

The Bank of England should start to withdraw some of the stimulus it provided in the wake of the Brexit referendum later this year, chief economist Andrew Haldane said Wednesday.

In a speech delivered in the northern English city of Bradford, Mr. Haldane outlined the reasons for his change of view, explaining that he now sees the risk of raising rates too late as being greater than the risks of moving too early.

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"The risks of tightening "too early" have shrunk as growth and, to lesser extent, inflation have shown greater resilience than expected," he said. "And if policy tightened "too late", this could result in a much steeper path of rate rises later on."

Mr. Haldane's change of stance constitutes a disagreement with Gov. Mark Carney, who Tuesday laid out the case against raising the central bank's key interest rate, something three of the MPC's eight active members voted for at their June meeting.

Mr. Haldane suggested he had come close to joining that group of dissenters, having "considered the case for a rate rise at the MPC's June meeting" before deciding that a move later in the year would be more prudent.

He noted that June's general election, which left Prime Minister Theresa May with the support of a minority of lawmakers and needing the backing of another party, had "thrown up a dust-cloud of uncertainty."

"I do not think adding a twist or a turn from monetary policy would, in this environment, be especially helpful in building confidence, at least until the dust-cloud has started to settle," he said.

In August 2016, the BOE cut its key interest rate to a record low of 0.25% and reactivated a dormant bond buying program in response to Britons' vote to leave the European Union.

Mr. Haldane said policy makers should prepare to remove some of that stimulus, suggesting that for now he favors only a modest tightening in policy.

"A partial withdrawal of the additional policy insurance the MPC put in place last year would be prudent relatively soon, provided the data come in broadly as expected in the period ahead," he said. "Certainly, I think such a tightening is likely to be needed well ahead of current market expectations."

In a rescheduled speech to bankers at Mansion House in London, Mr. Carney said weak wage growth raised questions about the strength of domestic inflationary pressures, and he was unsure how the economy would respond to talks between the U.K. government and the rest of European Union on the terms of their separation.

"From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anemic wage growth, now is not yet the time to begin that adjustment," he said.

Mr. Haldane cited weak wage growth as a reason to wait until later in the year, and said growth could be slower than the BOE expected.

"Both are reasons for monetary policy not to rush its fences," he said. "Nor does it need to do so, given the slow build of nominal pressures in the economy."

Public disagreements between senior BOE officials aren't uncommon, but they have been relatively rare under Mr. Carney's stewardship. While members of the MPC that don't work full-time for the BOE have from time to time voted for a rise in the key interest rate, none of the five BOE officials have done so.

The pound's depreciation since the June 2016 vote to leave the EU has pushed up import prices, and the MPC expects inflation to be above their target over coming years.

Write to Paul Hannon at

(END) Dow Jones Newswires

June 21, 2017 07:19 ET (11:19 GMT)