Households better off thanks to Bank’s actions, says top policymaker
Chief economist Andy Haldane said the Bank should publish personal ‘monetary scorecards’ to help rebuild trust and understanding in economics.
The Bank of England has launched a defence of its actions during the financial crisis as it claimed UK household income is nearly £9,000 better off thanks to its efforts to boost the economy.
In a speech at the University of Melbourne in Australia, the Bank’s chief economist Andy Haldane said the average family has benefited to the tune of around £1,500 a year each from the Monetary Policy Committee’s moves to slash rates and support growth since 2008.
Just 4% of households are £500 or more worse off, according to the Bank’s most detailed yet analysis of the impact of record low interest rates and other policy actions launched in the wake of the financial crisis.
It follows public and political criticism that the Bank has contributed to the wealth inequality in the UK, making the rich richer and poor poorer and disproportionately hitting pensioners who have seen their savings decimated by rock bottom interest rates.
Since the credit crunch in 2007 and full-blown financial crisis and recession that followed, the Bank cut rates from 5.5% to 0.5% between February 2008 and March 2009 and injected £435 billion into the economy through quantitative easing.
There was also further action taken after the Brexit vote, although this has not been taken into account in the Bank’s figures.
But Mr Haldane – who is also a member of the nine-strong Monetary Policy Committee (MPC) – insisted the Bank’s policies have not worsened wealth inequality and said without its actions, unemployment would be higher and growth lower.
He said the Bank should publish a personal “monetary scorecard” to illustrate the impact of its policies to the public and help rebuild the lack of trust and understanding in economics.
He said: “The average household has gained in income terms by around £1,500 each year, or close to £9,000 cumulatively, from the MPC’s monetary loosening.
“Put differently, the average household would have been around 5% worse off each year had monetary policy not been loosened in response to the financial crisis.”
He added that the impact on net wealth was even larger – with the average household benefiting by almost £90,000 thanks to higher house prices, stock and share increases and pension fund gains.
“The MPC’s monetary loosening added around £260 per year to the average household’s net interest income, £1,200 to their labour income and £14,000 to their net wealth,” he added.
Mr Haldane said: “The material loosening of UK monetary policy after 2007 has had a significantly positive effect on employment, income and wealth, without which average living standards in the UK would be materially lower.”
But he said more needs to be done to communicate the impact for the public.
“There is a strong case for making, on a periodic basis, comprehensive and transparent assessments of the distributional impact of monetary policy,” he said.
“This would help people understand the purpose and impact of monetary policy, both on the economy in general and on them as individuals.”
He said “scorecards” could be similar to the annual tax summaries sent out by the Government since 2014, which break down how taxes are spent.
Mr Haldane made no mention of the outlook for UK rates amid mounting expectations for another rate rise as soon as May, following an increase from 0.25% to 0.5% last November.
But fellow MPC member Ian McCafferty separately said on Tuesday that the Bank should not “dally” over its next rate hike.
The policymaker – who was one of two MPC dissenters who voted for an immediate hike to 0.75% in March – told Reuters wage growth could prove higher-than-expected and risk pushing inflation even further above the Bank’s 2% target.