None of the conditions met for negative rates, says Bank’s chief economist

The Bank of England’s chief economist has further dampened expectations over negative interest rates as he warned now was not the time for “Chicken Licken” pessimism over the economy.

In an online speech, Andy Haldane said none of the conditions that would justify the Bank taking rates below zero for the first time in its 326-year history had yet been met.

He added that it was likely to be a “number of months” before the Bank’s work looking into the feasibility of negative rates would be finished.

Treasury Select Committee
Treasury Select Committee

His comments come amid mixed views from policymakers on negative rates in recent days after minutes of the latest Monetary Policy Committee (MPC) meeting revealed the Bank was looking at how the policy tool could be put into practice.

Mr Haldane said: “Some commentators have interpreted the start of this work as conveying a signal about the likelihood of the MPC introducing negative rates in the near term.

“The minutes contained no such signal.”

Speaking at a virtual event by the Cheshire and Warrington Local Economic Partnership, Mr Haldane also cautioned that over-pessimism about the economic outlook could hold back the recovery.

He said the Bank expects the economy to rebound with “vertiginous” growth of 20% in the third quarter and said the faster-than-expected recovery should not be overlooked.

This would mark a record bounce-back from recession, with official figures separately on Wednesday showing GDP collapsed by an upwardly revised 19.8% in the second quarter.

Mr Haldane said the economy faces an “unholy trinity of risks” from rising Covid-19 cases, mounting job losses and the end-of-year Brexit deadline, but stressed there was a danger of exaggerating the threat they pose.

“Encouraging news about the present needs not to be drowned out by fears for the future – now is not the time for the economics of Chicken Licken,” he said, referring to the tale of a bird who fears the sky is falling down.

He said the speed and scale of the recovery has been “fairly remarkable”.

“The economy began its recovery from this dramatic fall earlier, and has since recovered far faster, than anyone expected,” he said.

Mr Haldane has been one of the most optimistic over the UK’s economic recovery from the pandemic and insisted in his speech that “policy authorities, including the Bank, have a public responsibility to avoid economic catastrophising”.

His views on negative rates also see him echo comments by Bank governor Andrew Bailey, who has sought to play down talk of a move to take rates negative since the last MPC meeting.

But signs of a split on the MPC are emerging, with external member Silvana Tenreyro appearing to back sub-zero rates at the weekend, saying there was “encouraging” evidence on their effectiveness.

Just days later, Bank deputy governor Sir Dave Ramsden took a very different stance, saying rates had likely already bottomed out at 0.1%.