BOE Policy Action Is ‘Short-Term Balm,’ Haldane Writes in Times

  • Monetary policy is only short-term balm, BOE economist says
  • U.K. economy faces structural problems that must be addressed

Monetary policy is only a “short-term balm” that can’t fully insulate the U.K. from the long-term impacts of the vote to leave the European Union, Bank of England Chief Economist Andrew Haldane wrote in the Sunday Times.

The bank’s package of monetary policy measures unleashed earlier this month, including the first interest-rate cut in seven years, are designed to be a shot in the arm for business and consumer confidence after the vote to leave the European Union “has thrown up a dust cloud of economic uncertainty, making it harder for companies to plan, with potentially adverse implications for future investment and jobs,” Haldane said in the Times.

“No one on the MPC is under any illusion that monetary policy can fully insulate Britain from the long-term effects of the decision to leave the EU,” Haldane said. “This is a structural shift in the U.K.’s economic and trading regime, whereas monetary policy can offer no more than a short-term balm for economic uncertainty.”

The U.K. economy faces structural problems including stagnant wages for more than half the country’s households and growing wealth disparity with the asset-rich receiving most of the benefits, Haldane said. The fact that property prices and rents are rising faster than wages has further eaten into the disposable income of the young and the poor, he said.

Monetary policy can’t set different interest rates for different economic classes and regions, so other policy makers will need to address those problems, he said.

“The national income pie has expanded steadily, the wealth pie rapidly, over recent years,” Haldane said. “But they have both been devoured whole by middle-aged and older people.”

— With assistance by Dan Murtaugh

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