When the facts change, chime many economists, they change their minds. And today one of the most influential of their number has changed his. Andy Haldane is the chief economist of the Bank of England. In his first television interview since joining the Bank’s powerful Monetary Policy Committee (MPC) he’s told ITV News that interest rates should start to rise much later than he thought only a few months ago.
In June he thought they should rise sooner – which investors then took to mean next month – as the economy picked up steam. He favoured being “on the front foot” to avoid having to act fast and furiously if inflation quickly got out of hand. Today he tells us that the weaker global economic outlook (which threatens ours) and the lack of inflation at home mean rates probably won’t go up for many months.
Investors (in the bond markets) are guessing the middle of next year and he says that’s “not a bad bet”. In central banker terms that is a very clear signal.
Far from fretting about inflation being too high, the Bank is worried it has been below the two per cent target for all of this year and may well slip below one percent, triggering a letter from the Governor to the Chancellor to explain what’s gone wrong. Across the Channel, there are concerns that a stagnating euro area might slip into deflation and stagnation and he says “there must be some risk” to the UK from the Eurozone’s troubles.
Unsurprisingly, then, Mr Haldane is untroubled by the first glimmers of wage inflation as spare capacity is used up and indeed he’d welcome the inflation that would generate.
One small note of caution, though, “if the last three months tell us anything,” says Mr Haldane, "it's that the data can change a lot. And when the data changes financial markets and we on the MPC change our minds.” Ever the economist…