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Bank of England recommends keeping interest rates low

17/10/2014

Interest rates could remain at the benchmark low of 0.5% for longer than previously expected, following a speech from the Bank of England’s chief economist.

In his speech, Andrew Haldane claimed that the UK economy is “writhing in both agony and ecstasy”. He said that this is because of a mix of both positive and negative factors are currently affecting the state of the UK economy.

Mr Haldane claimed that the positives included:

- Strong growth
- Low inflation
- High employment rates

However, he also said that these positives have been tempered by:

- Reduced global growth
- Increased geo-political and financial risks
- Low wage growth
- Low commodity price growth

He said that because of these negative factors, he is “gloomier” about the short term future of the UK economy.

Mr Haldane continued to say: "This implies interest rates could remain lower for longer, certainly than I had expected three months ago."

Stock market tumble



Stock markets throughout the world have tumbled as a result of recent economic worries, with the main factors including low Eurozone growth, the potential spread of the ebola virus and the impact of a war with Islamic State.

Until recently, the general consensus was that interest rates would be gradually increased in line with a recovering economy. However, it now appears than the Bank of England could keep interest rates low for the foreseeable future.

Mr Haldane said: "If there is genuine uncertainty about the path of the economy, the optimal policy response may be to avoid the worst outcomes."



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