BOE's Haldane: Record Low-Rates Needed for Recovery

        LONDON—Raising interest rates too early could risk another recession in the U.K., the Bank of England's chief economist Andy Haldane planned to say in a speech Tuesday.
        According to a prepared text of the speech, Mr. Haldane was to argue that the central bank should keep the short-term policy rate at its current record-low of 0.5% for the short-to-medium term.
        "A policy of early liftoff could be self-defeating. It would risk generating the very recession today it was seeking to insure against tomorrow," Mr. Haldane was to say, according to the text. Mr. Haldane is one of the nine members of the central bank's interest-rate-setting Monetary Policy Committee.
        Although inflation in the U.K. remains subdued, the Bank of England expects it to return to 2% annual growth—the BOE's target—by the second quarter of 2017. These forecasts are based around the current belief by investors that the central bank will begin raising interest rates in mid-2016.
        However, some economists say recent improvements in wages could create upward pressure on prices, which could drive the central bank to act earlier.
        Regular pay for British employees grew at the fastest pace in more than six years during the three months to April, official figures showed this month. Since economic growth in the U.K. has so far not been matched by an increase in productivity—a key gauge of the nation's economic potential—some Bank of England officials are concerned inflation could mount faster than expected.
        In the last meeting of the BOE's rate-setting body, officials unanimously decided to hold off raising interest rates, but for two members the decision was "finely balanced," minutes of the session revealed.
        By contrast, Mr. Haldane, who is generally considered as one of the more dovish members of the rate-setting committee, planned in Tuesday's speech to warn that even a modest interest-rate rise could deliver bad news to already cautious consumers and risk slowing economic growth in Britain. This in turn could force the central bank to move interest rates back down.
        "These self-reinforcing tendencies explain why the glue sticking interest rates to their floor has been so powerful," Mr. Haldane planned to say. According to the BOE's chief economist, recent data on wages is likely an aftereffect of how weak pay growth has been in the last two years. "Wages are not about to embark on a rocket-propelled ascent," he was to add.
        Mr. Haldane was due to give the speech Tuesday at the Open University in Milton Keynes.
        Write to Jon Sindreu at jon.sindreu@wsj.com
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        (END) Dow Jones Newswires

        June 29, 2015 22:20 ET (02:20 GMT)

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