Economics guru Andy Haldane warns: ‘It’s time to change high rate mindset’

Colourful language: Andy Haldane is a proud Northerner

When will it be time to start cutting interest rates? That is the question on the lips of every City economist. It’s also a preoccupation for millions of borrowers. 

Andy Haldane, the Bank of England’s former chief economist and a hugely influential figure in the financial world, thinks that now might be too soon. But he argues that it is time for the Bank to stop threatening to raise them.

Haldane, who spent 32 years at the Bank, thinks its insistence – in the face of sceptical markets – that rates may have to rise further is a mistake.

‘My reading of the economic tea leaves right now is that it is not what the economy needs, because of that fearfulness about jobs, about incomes, about mortgage payments, about rental payments,’ Haldane says.

‘You see that in the surveys. You see that in the conversations that people are having.’

He has been right before. Back in the spring of 2021 he was warning that the Bank of England must act to curb inflation – a call that went unheeded until it finally started raising rates at the end of that year. Now, he is again urging his former colleagues to change tack – this time in the opposite direction.

The Bank has raised rates to 5.25 per cent as it seeks to bring inflation down to its target of 2 per cent, but it is still some way from hitting that target.

Higher rates affect millions of borrowers by adding hundreds of pounds to their monthly mortgage bills. They also make life tougher for enterprising businesses which need to borrow to get started or to expand.

Britain, Haldane says, has a bright future. But over the past 18 months the economy has only been able to ‘just about hold the line’ in avoiding recession – partly helped by consumers dipping into their savings to maintain spending.

Now as that savings pool dries up and higher mortgage bills land on doormats, he argues that lower borrowing costs should be on the mind of the rate-setting Monetary Policy Committee.

While it ‘might be premature’ to be voting for actual cuts now, he says ‘we are entering a period with a strong bias towards easing’ and ‘the narrative ought to be in that direction’. In plain English, the committee should be thinking about it hard.

Partly thanks to the UK’s current economic weakness, markets are betting that rates will start to be cut from spring of this year. Those bets are already having an impact on mortgage rates, which means they are drifting lower even without the Bank of England acting.

Does merely talking about rate hikes contribute to the uncertainty for borrowers?

‘I think it can,’ Haldane says. ‘The good news is that financial markets have taken a different view to central banks and that is now starting to flow into actual mortgage rates.

‘So, mortgage rates have come down from their peaks, but have been led in that direction not by central bankers but by financial markets. Might there be scope for central banks to be encouraging of financial markets rather than leaning against it? I think that would be a desirable thing.’ While the Bank has an inflation target of 2 per cent, Haldane says it becomes less of a problem if inflation reaches about 3 per cent, perhaps in the second quarter of this year.

While inflation is ‘topic du jour’ if it is running at 10 per cent, ‘that’s not true at 3 per cent’, he says.

‘At 3 per cent, people stop talking about inflation,’ Haldane points out. In that case, particularly if the economy is looking weak, he says ‘the right thing for the Bank to do is to ease off the brakes, to get growth back up’.

Haldane worries that more borrowers are going into arrears, and that homelessness and debt distress are rising.

‘I think in that situation the right thing to do is to start cutting the economy some slack through cutting rates,’ he says.

At the Bank of England, Haldane gained a reputation for original thinking and his colourful turn of phrase.

He famously warned during the pandemic about the grim ‘economics of Chicken Licken’ – a fear that the sky is about to fall in.

Since leaving the Bank in 2021 he has led the Royal Society of Arts think-tank. Haldane spoke to The Mail on Sunday in the RSA’s handsome Georgian headquarters building. Dating back 260 years, the organisation’s full title ‘the royal society for the encouragement of arts, manufactures and commerce’, reveals the think-tank’s broad remit.

A proud Northerner, 56-year-old Haldane is a father of three who was born in Sunderland and grew up in Leeds before going to university in Sheffield and Warwick.

On his desk in the heart of central London sits a mug inscribed with the motto: ‘You can take the lad out of Yorkshire but you can’t take Yorkshire out of the lad.’ He is also a freeman of the City of London, which hands him the ancient right to herd cattle across London Bridge – a box he wants to tick this year. But it is in the North – Haldane has recently travelled to Liverpool, Sheffield and Sunderland – that he sees signs of an economic resurgence.

‘I come back from these places just bowled over by the energy,’ he says. A few days before our interview, Haldane had been speaking at an event held by another think-tank aimed at addressing ‘stagnation’ in Britain. ‘And yet when I escape the Westminster Bubble I see dynamism and energy and progress and projects and businesses getting on with it,’ he says.

Sunderland, the football team he supports, currently languishes in the second tier of English football. But he thinks that the club and the city are set for better days ahead.

He says: ‘There have regrettably been too many downs and not enough ups, but rather like Sunderland itself I think there are some real signs of green shoots – both at the football club and in the city.’

Hopes for the city have been raised by major investments such as those made by car maker Nissan. Another big investor is James Corden’s film company Fulwell 73, which is building a major film studio on the banks of the River Wear.

‘I have a real sense of this being a moment – for the North-East of England – of regeneration,’ Haldane says.

One way of helping boost growth, he argues, would be to split a separate economic ministry out of the Treasury – an idea that has had its champions before and is common in other countries, but has never caught on in the UK.

Haldane’s version would take that ministry out of London and base it in Darlington, where the Treasury already has an outpost. He would have it overseen by a powerful US-style council of economic advisers.

It would be ‘the architect and delivery vehicle for a national growth plan’, Haldane says.

He compares it to the way that companies are run, with a chief financial officer holding on to the purse strings.

‘We can’t have the CFO setting all the strategy,’ Haldane says. ‘Ultimately first and foremost the finance ministry is about stopping us going bust.

‘It’s about financing the project – not deciding and financing the project.’

Haldane does not rule out working with a future Government, having previously been appointed by Boris Johnson to oversee a levelling-up taskforce.

‘My approach has always been that I speak openly to all and any of the political parties and offer my objective apolitical advice.

‘I am very, very optimistic about the UK. But I also think that opportunity will not knock unless we do some quite big and bold things of a policy nature to fire up the growth engine.’

Haldane says he would be happy to ‘try to persuade both Jeremy [Hunt] and Rachel [Reeves]’ of any policy ideas. ‘What matters is the right policies,’ he insists.

Would he appear on a party conference stage endorsing a politician – as his former boss Mark Carney did with Labour? ‘I think that risks reducing your effectiveness,’ he says.

Haldane has previously been reluctant to give his opinion of Brexit. Now, however, he acknowledges that there are encouraging signs. ‘I think that’s a huge positive that business is getting on with it and looking to new markets and looking to new investments.

‘The car industry was one of the most vocal about the concerns of Brexit and the fact that firms are adjusting and indeed investing I think is very encouraging.’