Weak growth means rates should stay low, Bank ‘hawk’ concedes

The former Goldman Sachs economist succeeded arch-hawk Andrew Sentance on the Bank’s nine-man rate-setting body, but has not copied Sentance’s stance, voting to leave monetary policy unchanged in June, July and August.

The UK economy is squeezed between high inflation – more than double the Bank’s two percent target – and low growth, and a Reuters poll consensus last week was for interest rates to be kept at record lows at least until next October.

“It’s clear that the outlook has softened since earlier this year, and the latest forecasts both internationally and for the domestic economy are for continued growth but at a rate lower than people expected some months ago and certainly lower than one would expect in a, quote, normal economic recovery,” Broadbent said.

“I was probably on that (hawkish) side of the debate when I arrived at the Bank earlier this year ... I was concerned that a long period of above-target inflation might dislodge medium-term expectations of future inflation and find their way into other prices and wages,” he added.

“That hasn’t happened and, as I say, the outlook for growth domestically as well as globally has weakened in the last three or four months, so I would describe myself now as much more in the middle of the debate.”

Broadbent said the MPC’s assumption was that there had been a permanent loss of output in Britain and appeared to hint at a scenario in which more quantitative easing would be considered.

“I still believe there’s significant spare capacity in the economy, and that means that interest rates are low,” he said.

“If that outlook changed in a way which would lower the prospects for inflation over the medium term, maybe more could be done.”

The Bank last week inched closer to launching a second round of quantitative easing after two policymakers unexpectedly dropped their call for higher interest rates.