SCUNTHORPE, England (Reuters) – Bank of England Chief Economist Andy Haldane said he would be very wary about lowering interest rates unless there is a sharp economic downturn because the British economy is at full capacity and should not rely on BoE stimulus for growth.

Recent weak economic data reflected Brexit volatility while consumer confidence and the job market remain strong, and Britain is in a different policy position to the United States and the euro zone, Haldane said in a speech.

British economic growth is expected to stall in the second quarter and business investment is “strikingly and significantly subdued” ahead of Brexit, he added.

However, the low level of inflation-adjusted interest rates in Britain compared with overseas, and lack of extra capacity in the labour market meant that looser policy in the United States and euro zone is not a model for the BoE, he said.

“My personal view though is that I would be very cautious about considering a monetary policy loosening, barring some sharp economic downturn,” he said at an event for local businesses in Scunthorpe, northern England.

“The future course of monetary policy in the UK already looks rather different than in the past, and rather different to our international counterparts,” he said.

Haldane said that the uncertainty about Brexit meant he preferred no change in borrowing costs for now.

His latest view contrasts with strong support for a rate cut and a resumption of quantitative easing shortly after Britain voted to leave the EU in June 2016, when business surveys pointed to a sharper downturn than actually occurred.

“With the economic road ahead potentially forking, the case for holding rates until the road becomes clearer is strong,” he said in the speech.

Market bets that the BoE is more likely to cut rates than to raise them are not a good guide to the BoE’s policy intentions, due to uncertainty about the terms on which Britain would leave the EU later this year, Haldane said.

If Britain does leave the EU without a deal on Oct. 31 – something Boris Johnson, the incoming prime minister, has not ruled out – the BoE would not automatically cut rates, and could even raise them, Haldane said.

“If a ‘no deal’ were to lead to a sharp fall in sterling and a sharp rise in inflation expectations, it is not clear the MPC could cut interest rates, as the market expects, if it was to meet its inflation mandate,” he said.

Policy would need to be “fleet of foot” after Brexit, he added.


More broadly, markets and the public had grown too accustomed to ultra-low interest rates since the 2008 financial crisis, he added.

“It is important that monetary policy is not a prisoner of its past, that the monetary cavalry are not called at the first whiff of grapeshot, that a dependency culture around monetary policy is not allowed to develop,” Haldane said.

“Super-charging the supply-side of the economy is what is now needed,” he added.

Haldane said it was not his role to comment on what the next government’s fiscal policy should be, but that there was no better time than now to sort out deep-seated structural issues around education, training and transport links.

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