Bank of England chief economist Andy Haldane warns over inflation

Bank of England chief economist Andy Haldane warns over ‘nasty’ inflation that could send debt costs spiralling out of control

The Bank of England must have a ‘laser focus’ on inflation to stop Britain’s debt costs spiralling out of control, its chief economist has said.

Andy Haldane has said that the vast amounts of Government spending and quantitative easing in the economy have made the Bank ‘super-vigilant’ about a possible rise in inflation.

The 53-year-old said: ‘The last thing the world needs right now is a nasty inflation surprise.’

Bank of England chief economist Andy Haldane said the amounts of Government spending and quantitative easing has made the Bank ‘super vigilant’ about a possible rise in inflation

Britain is now extremely vulnerable to a rise in inflation as national debt rises over 100 per cent of GDP to its highest level since the early 1960s.

If the Bank increases interest rates to keep inflation down the cost of servicing that debt will rocket, threatening the UK’s recovery. 

Haldane said the Bank would be prepared to allow inflation to overshoot its 2 per cent target temporarily, especially if it was as a result of temporary effects such as changes to VAT, oil prices or the exchange rate.

He said: ‘We’d be super vigilant, with so much monetary stimulus and fiscal stimulus having been put in the system, that this doesn’t show up in any more medium-term measures.

‘What can even appear to be a temporary effect, if it affects expectations it could easily get locked in.

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‘We’re not there at the moment, but it’s definitely a risk we need to take care of.’ The economist, who recently predicted that consumers would splurge £100billion of pandemic savings and boost the recovery, said he was confident about the economy in the second half of 2021 thanks to coronavirus vaccines.

Consumers have been happy to switch their spending from holidays, commuting and eating out to sofas, DIY kit and online streaming subscriptions.

An explosion of spending could push prices up, forcing central bankers to react fast.

The base rate has been at record lows ever since the financial crisis, hitting savers, but providing a boon to those with mortgages and debt.

Haldane added: ‘If this year has taught us anything, it’s that we need to be super-sensitive and super-responsive to the data.

‘Is this more like the aftermath of a financial crisis – slow and steady – or is this more like the aftermath of the 1918 flu pandemic or a world war, which elicited a much faster release of pent-up demand?’

Figures from the Institute for Fiscal Studies show that middle-class families had, on average, an extra £350 a month in their bank accounts between March and September this year.

But the poorest households were £170 a month worse off as the pandemic led to redundancies in low-paid sectors such as hospitality and retail.