The Bank of England’s chief economist has warned that Britain’s employment boom could be at risk if the central bank waits too long before hiking interest rates.
Andy Haldane told an influential group of MPs he wants to avoid a scenario where the Bank is forced to perform a “handbrake turn” because it did not move quick enough to curb rising inflation.
The comments come after the Bank’s nine-strong Monetary Policy Committee (MPC) voted unanimously to leave rates unchanged at 0.5% earlier this month, but said the cost of borrowing would need to rise sooner and by more than expected to get inflation back to target.
Speaking to the Treasury Select Committee, Mr Haldane said: “Historically the thing that has really killed jobs has been central banks stepping on the brakes too late. As Janet Yellen said, ‘recoveries don’t die of old age’.
“They die because central banks step on (the brakes) because they react too late.
“And we’re absolutely clear, we don’t want to be back there again because it’s bad news for jobs.
“And that means going in this limited and gradual way to head things off in advance to prevent having to step on the brakes, a handbrake turn... and that’s fundamentally at the root of our role as a central bank.”
Official data released on Tuesday revealed that unemployment had increased by its largest amount in nearly five years.
Figures from the Office for National Statistics (ONS) showed the number of people out of work rose by 46,000 to 1.47 million in the quarter to December 2017.
Despite the increase - the first jobless jump since the summer of 2016 - the number of people in work increased by 88,000 to 32.1 million.
Mr Haldane said rates may have to rise at a faster pace than the Bank had predicted, causing the pound to pare losses against the US dollar to around 1.39.
He said: “I think there is the potential for greater than expected momentum in both global and UK growth and inflation.
“In my view, this would put the balance of risks to the path of interest rates necessary to return inflation sustainably to target to the upside.”
Markets are predicting that the next rate rise could come as soon as May and are pencilling in at least three hikes within three years.
Bank Governor Mark Carney told the TSC that it aimed to bring inflation back to the 2% target in under three years, but said the move would not be achieved in two years.