LONDON – The Bank of England’s chief economist signalled Friday that interest rates could remain at record lows for longer than expected due to weaker wage growth and global economic uncertainties.
Andrew Haldane told business leaders he had become “gloomier” because real wages are falling, productivity is stagnant and savings interest rates are at their lowest since the 1970s, even as Britain’s economic growth rate remains the envy of other G-7 nations.
“The U.K. economy appears to be writhing in both agony and ecstasy,” he said. “It is twin peaked.”
The comments helped boost British stocks, which had fallen on investor concern that the Bank of England would increase interest rates. Haldane’s remarks came after James Bullard, president of the St. Louis Federal Reserve, said U.S. central bankers should consider delaying plans to wind down bond purchases this month.
Critics of Britain’s austerity program have long pointed to concerns about the uneven nature of the country’s recovery from the 2008 financial crisis, which has left many workers struggling to make ends meet.
“2014 was meant to be the year of the pay rise but we’ve seen just the opposite, with nominal wage growth slowing to less than 1 per cent — a historic low,” said Matthew Whittaker, chief economist at the Resolution Foundation.
On the positive side, Britain’s economy is growing about 3 per cent annually, U.K. stock prices have risen 50 per cent since 2009 and the unemployment rate has dropped to 6 per cent, Haldane said.
At the same time, real wages are about 10 per cent below pre-recession levels, productivity has been stagnant for the longest period since the 1880s, and real interest rates on savings are near zero.
Haldane also cited weakening global growth, increased geopolitical and financial risks, and weaker inflationary pressures.
“Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago,” he said.