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‘Some controversy off the pitch’ AJ Bell comments ahead of BoE Haldane’s last meeting

  • Bank of England interest rate decision next Thursday
  • It’s Andy Haldane’s last meeting before leaving the Bank
  • Haldane’s voting record and pensions clanger
  • Markets will be watching for words not actions

Laith Khalaf, financial analyst at AJ Bell, comments:

“Inflation is rising and unemployment is falling, but the Bank of England isn’t going to do anything about raising interest rates until it’s sure these aren’t just transitory factors emanating from an economy that’s gone from red to green. Markets will therefore be watching for any change in rhetoric rather than concrete action, particularly following the latest hawkish shift in interest rate expectations from the US central bank. We’re now beginning to reach that topsy turvy part of the cycle where good news becomes bad news, because markets worry that positive economic signals will hasten the withdrawal of central bank liquidity.

“The forthcoming meeting will be Chief Economist Haldane’s last, before he leaves the Bank of England after a 32 year career at Threadneedle Street. Haldane has been a consensual member of the MPC in his seven year stint on the committee, going against the majority decision on interest rates only once, in June 2018, when he voted for a 0.25% hike. Just a month later, the MPC voted unanimously to raise rates, so this was hardly a controversial stand.

“Haldane has courted some controversy off the pitch, when in 2016 he said he didn’t understand pensions, and said financial advisers had “no clue” either. Quite clearly a feather ruffler in certain quarters. As many pointed out at the time, Haldane enjoys the benefits of being a member of public service defined benefit scheme, which guarantees a retirement income, and means pension planning probably isn’t quite as pressing a matter as it is for the majority of people. However he was absolutely right to point out at the same time how the lack of supply in the housing market would lead to a property price boom, a phenomenon which continues apace today, aided by low interest rates and government policies designed to incentivise and facilitate house purchases.

“More recently, Andy Haldane has become concerned about inflation, which actually caused him to vote to rein in the QE programme by £50 billion at the last MPC meeting. Inflation is indeed the big quandary facing central banks today, and it could well be hiding in plain sight, as prices rise under the cloak of a reopening economy. The Bank will likely continue to view inflation as transitory until we’ve fully lapped the first wave, and the furlough scheme has been unwound. This means if inflation does become a problem, the Bank will probably be late in taking away the punchbowl.”

 

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