Bank of England is crushing economy, says former chief economist Andy Haldane

The Bank of England risks ‘crushing’ the economy if it fails to cut interest rates quickly enough, its former chief economist has warned.

Andy Haldane said holding rates too high for too long could prolong the recession – and hammer the central bank’s credibility in the process.

His comments came after official figures last week showed Britain ended last year in recession. More recent data suggests the economy has started 2024 in better shape.

But that could be put at risk if the Bank of England keeps rates high for too long, Haldane suggested. 

That would compound its error in not raising rates earlier when inflation was rising, he said.

Concern: Former Bank of England chief economist Andy Haldane (pictured) said holding rates too high for too long could prolong the recession

‘It’s one thing to have missed inflation on the way up, which happened, it’s quite another to then have crushed the economy on the way down,’ Haldane told Bloomberg.

‘That double blow to credibility is one – if I were a central banker, in my old job – I would be looking to avoid.’

Latest GDP figures show the economy shrank by 0.3 per cent in the final quarter of last year, following a 0.1 per cent contraction in the third quarter. Two quarters in a row of negative growth means an economy is in recession.

Back in 2021 as he was preparing to leave the Bank, Haldane was among those calling for it to raise rates to tackle rising inflation – a call that was not heeded until the end of that year.

Now he fears it is being too slow to move in the other direction.

Asked whether the Bank could worsen the recession unless it changes tack soon, he said: ‘I think that’s where the balance of risks lies, yes.

‘For me the case for putting in place some upfront, early insurance on the monetary policy side is strong and strengthening, and I’m fearful we leave that insurance a little too late in the year.’

Hopes that the recession could soon be over were boosted last week by better-than- expected figures showing retail sales bounced back after a dismal December with an increase of 3.4 per cent in January. 

That could help Britain emerge from a downturn just as Germany is staring into a recession.

Yesterday, the Bundesbank predicted that German GDP could decline again in the first quarter, following a contraction in the fourth quarter. It added: ‘There is still no recovery for the German economy.’

The Bank of England’s prognosis for the UK is slightly less gloomy. It thinks GDP in Britain will eke out growth of 0.1 per cent at the start of this year.

Hopes have been raised that interest rates – which were raised to 5.25 per cent – will start to fall now that inflation has dropped back to 4 per cent. That should boost growth.