BoE’s Forbes: Strong pound might not have lasting effect on inflation

The case for raising interest rates was “some way from being made”, he added.

But he said there were significant risks of contagion given the growing clout of developing economies in recent years.

The risk of a sharp slowdown in China and other emerging economies has prevented the Fed from starting to raise interest rates and is being watched closely by the Bank of England.

“The balance of risks to United Kingdom growth, and to United Kingdom inflation at the two-year horizon, is skewed squarely and significantly to the downside”, Haldane said in a speech.

BoE governor Mark Carney said on August . 29, however, that a rate increase should be expected near the end of the year.

He explained that although the Bank of England and its counterparts in the USA , Japan and Europe had injected $5 trillion of new money with quantitative easing since the financial crisis, further radical actions might be necessary in the face of profound demographic, technological and economic changes.

Andy first considers the need for central bankers to explore ways of conducting monetary policy at the zero lower bound.

“Furthermore, Martin Weale and Kristin Forbes have both indicated their belief that interest rates will need to rise sooner rather than later – a view that they seemed to reinforce in testimonies this week on the Bank of England’s Quarterly Inflation Report to parliament’s Treasury Select Committee”.

He added that the Bitcoin idea was better than the alternatives which, he said, could include doubling the Bank’s inflation target to 4% or making QE – popularly dubbed “money printing” – as a permanent feature of its operations.

The BoE as a whole is edging closer to an interest rate hike, but voted 8-1 this month to keep them on hold.

Whilst Haldane acknowledges that bitcoin “divides opinion like nothing else”, he says that the distributed payment technology underpinning it has “real potential”.

The third and final option for dealing with the ZLB would be charging a negative interest rate on currency, most probably through a state-issued digital currency. But “while the UK’s recovery remains on track, there are straws in the wind to suggest slowing growth into the second half of the year” such as softening employment and surveys suggesting slowing output growth.

“One reason not to do so is that, were the downside risks…to materialize, there could be a need to loosen rather than tighten the monetary reins as a next step to support United Kingdom growth and return inflation to target”, Haldane said.