A former Bank of England economist forecasts inflation in the U.K. will decline quickly as officials consider the next steps to ward off rising prices, including increasing the prime rate of interest, according to reports.
Evidence of reduced inflation is likely to be seen over the coming months, Andy Haldane, the Bank's former chief economist, predicted, adding that policymakers should think about easing up on additional hikes in borrowing costs, according to The Guardian. Haldane, who left the Bank two years ago to take the helm of the Royal Society of Arts thinktank, told the news outlet the goal was to cut inflation in half in the next six months, making good on a pledge pronounced earlier this year by Prime Minister Rishi Sunak.
“The effects of the tightening so far haven’t been fully felt. That would give me cause for pause,” Haldane, chief executive of monetary policy, told the news outlet. “I’d think, hang on, the economy is still on unsteady legs right now.”
Consumer inflation has been sparked by several events, including the COVID-19 pandemic and Russia’s invasion of Ukraine, according to The Guardian, with energy prices increasing steeply. Haldane told the outlet some borrowers, including those with fixed-rate mortgages, have not yet been hit by the Bank’s increase to the main interest rate.
“Much of the tightening that has already happened hasn’t hit people’s bank accounts,” he told The Guardian. “Perhaps now is the time to press the pause button and see what happens.”
The signals have been in place for another increase in the bank rate, to 4.5% this month, and the probability of this occurring was high at 88%, according to The Guardian.
Moreover, the markets are signaling that rates could edge up to 5% by fall, while many economists predict the May hike could be the last one the Monetary Policy Committee (MPC) makes during the current cycle, according to The Guardian report.
Haldane offered his solution, urging the government to turn its attention to the U.K.’s weak gross domestic product growth, according to the news outlet.
