Haldane pushes back against expectations of rate increases, says cuts still a better option as Iran uncertainty grows
A former Bank of England chief economist believes interest rate hikes by the central bank would be a mistake, even as fears grow of surging inflation because of the ongoing conflict in Iran.
Andy Haldane, who worked at the BoE between 1989 and 2021, said in an ITV news interview that the current situation couldn’t be compared with the crisis that erupted after Russia’s 2022 invasion of Ukraine, when oil prices and inflation also ballooned.
“This time is different,” he said. “Then, demand was strong. Now, demand is weak. I’m not expecting the same inflation pressures remotely that we had back then. So there’s no immediate cause for the Bank of England to be slamming on the brakes with higher interest rates.”
The crisis in Iran has rocked the UK mortgage market, seeing a range of high street lenders raise rates and withdraw products in recent weeks.
It’s also raised questions about the BoE’s approach for the rest of the year, sparking speculation that the central bank could bring rates higher in the months ahead to offset the risk of skyrocketing inflation.
Still, markets tempered their expectations for rate hikes last week – lowering predictions from four increases to two – and economists aren’t convinced the BoE will begin raising rates anytime soon, according to a Reuters poll.
A small majority of economists polled by Reuters said they expected the central bank to hold its Bank Rate unchanged at 3.75% for the rest of the year as they weigh economic weakness against inflation risks.
Financial markets swooned and oil prices jumped again on Friday as Iran poured cold water on reports that it was negotiating with the Trump administration to bring the war to an end.
The US president’s decision to extend a pause on attacking Iranian energy facilities until April 6 has failed to calm traders, and some analysts believe the UK economy would be harder hit by a protracted conflict than most others.
The Organisation for Economic Co-operation and Development (OECD) slashed its forecast for UK growth this year to 0.7%, a sharp reduction from its previous expectation of 1.2%, leaving Britain in bottom place among leading industrialised nations for 2026.
That’s because the UK is heavily reliant on imported fuel and more sensitive than other countries to energy price volatility, the OECD said, meaning its economy could face a heavy blow if the war drags on.
Haldane believes that weakness strengthens the case for BoE rate cuts rather than pauses, even though that outlook could change if energy prices continue to climb – a potential “game changer” for the central bank’s rate strategy.
“But for now, growth in the economy calls for lower interest rates, not higher ones,” he said.
The Bank of England is scheduled to make its next rate decision on April 30.
