BOE’s Haskel signals caution in debate on raising UK rates

Bloomberg

Bank of England (BOE) policy maker Jonathan Haskel injected a note of caution into the debate about whether to raise interest rates in the UK.
Speaking at a Resolution Foundation event, Haskel said the economy was “firing on two cylinders” and that it’s “too early to declare success” in getting those on furlough back into work.
While Haskel said he wasn’t commenting on monetary policy, the remarks highlight the case for policy makers to wait before raising rates. The central bank surprised investors by leaving borrowing costs unchanged on November 4 but said that rates would have to rise in the coming months to bring down inflation.
Haskel also noted that uncertainty over Brexit contributed to a drop in business investment, and that there may be a permanent reduction in trade as a result of Britain’s decision to leave the European Union.
“One thing that did not help in investment was, of course, Brexit, and all of the agonies and so forth around the process of Brexit,” Haskel said on Monday. “From an economic point of view, all the uncertainty that led up to that, the series of cliff edges around the negotiation of the withdrawal agreement, were really bad for investment.”
Business investment was growing by over 5% a year before the Brexit referendum
Together, the remarks leave Haskel on the dovish end of the spectrum on the nine-member MPC.
He remained optimistic that in time the government’s support for people put out of work during the pandemic has protected the economy. He pointed to Resolution Foundation figures estimating the vast majority of furloughed workers have returned to work. That “suggests that thus far the huge fiscal support that was given to firms has defended workers’ incomes, has defended firms’ balance balance sheets and it hasn’t led to a complete falling apart of the economy,” he said. “Obviously we have to work out how we knit the economy back
together post-pandemic.”
Haskel said he was encouraged by the signs that intangible investment has stayed higher, which may be a “source of dynamism” in the future.