The former chief economist of the Bank of England has warned there is “more pain to come” for households and the wider economy as mortgage rate increases hit people’s bank accounts and weigh on spending.
Andy Haldane, who is now chief executive of the Royal Society of Arts, said it was painful to see the effects of rising interest rates since he left the Bank of England and its rate-setting monetary policy committee in June 2021.
The Bank of England has raised its key interest rate sharply since late 2021, from a historic low of 0.1% in November 2021 to 3.5% in December 2022. British households have been hit at the same time by big energy price increases and inflation in a broader collection of goods and services.
“It is painful and I fear there is more pain to come as those mortgage rate rises from last year begin to hit people’s bank accounts over the course of this year,” Haldane told BBC Radio 4’s Today programme.
“I would have preferred the Bank and other central banks to have started their rate rises a bit sooner. That would have helped a bit in nipping inflation in the bud and would have meant that we wouldn’t have had those rapid rate rises at the same time as the economy was hitting the buffers. But overall this global shock was always going to bring a significant degree of pain, including through higher rates.”
The Bank said in November that the UK risked entering the longest recession in 100 years as inflation caused households to cut back on spending, dragging back GDP growth.
Real wages – pay after the effects of inflation are taken into account – declined by 2.6% in the UK in the three months to November, among the largest falls in growth since comparable records began in 2001, according to the Office for National Statistics.
Haldane said the UK had suffered “a lost decade and a half in terms of pay rises in inflation-adjusted terms” that was “putting acute financial stress and indeed mental stress on a great many households”.
The dire record on wages was in part caused by the slow growth in the UK economy, he said. He also criticised the lack of UK investment in basic services such as health and education relative to other countries who the UK sees as peers. “The UK always seems to cop disproportionately in terms of the hits to incomes, the hits to lives, and that for me is down to us not having invested sufficiently in our systems, whether it is health, or education, or charity,” Haldane said.
The UK’s political instability – a “ministerial merry-go-round” in Haldane’s terms – has meant that government policy has not been followed through, and there is still a lack of a “medium-term plan for growth in this country”, he added.
