World Cup cheer is set to help the economy bounce back from its weather-beaten start to the year and support the need for an interest rate hike, the Bank of England’s chief economist has said.
Andy Haldane – who last week raised eyebrows by joining dissenters on the Monetary Policy Committee (MPC) to vote for a hike from 0.5% to 0.75% – said England’s recent football success had added to the “feel-good factor” among consumers.
In a speech in London, he said his decision to switch sides and cast his first dissenting vote since joining the MPC in 2014 was “hardly either surprising or radical”, given that rates have now languished at emergency lows for 10 years.
He said: “A Bank Rate rise of 25 basis points would still leave monetary conditions in the UK extraordinarily accommodative by any historical metric.
“And the aim in doing so is to lower the risk of needing to tighten policy less gradually in future and cause a sharper adjustment in the economy.”
The Bank held rates at 0.5% last week after a 6-3 vote as the majority of the MPC felt it better to wait until official data on the economy’s performance in the second quarter.
They are waiting for confirmation of a rebound after growth slowed sharply to 0.1% in the first three months amid the impact of the Beast from the East and a pull-back in consumer spending.
But Mr Haldane said consumer data had “bounced back strongly” in recent months.
He said: “The underlying picture now appears to be one of gently rising household spending.
“This is being supported by highly accommodative credit conditions and now-positive growth in inflation-adjusted wages.
“And then, of course, there is the World Cup. Without wishing to tempt fate, England’s recent sporting success on the football field (and cricket pitch) has probably added to that feel-good factor among England-supporting consumers.”
Mr Haldane said he would have voted for a rise in May, had it not been for the poor economic data.
He said it was better to take action now on rates that waiting.
Mr Haldane added: “Of course, there are always some data – and, indeed, some football teams – which disappoint to the downside. That is what data does.
“But waiting for something to turn up is not a prudent strategy in life. And waiting for everything to turn up is certainly not a prudent strategy for monetary policy.”
He said he wanted to raise rates to help return inflation – currently at 2.4% – to the 2% target, “given a tight labour market and gradually mounting pay pressures”.
This month’s vote by the Bank of England marked the biggest split vote on the MPC since June 2017 and firmed economist expectations that the next hike could come in August, when the Bank’s quarterly forecasts are also due to be published.