Emergency rate productivity hit was worth it to save 1.5m jobs, says Bank of England chief economist Andy Haldane
Slashing interest rates in the aftermath of the financial crisis has saved 1.5m jobs, the Bank of England's chief economist said today.
Speaking at the London School of Economics, Andy Haldane noted, while the ultra low interest rate environment had hampered productivity, it was worth it to keep over a million people in work compared with a scenario where the central bank had stuck with a pre-crisis 4.25 per cent.
"Should monetary policymakers have sacrificed 1.5m jobs for the sake of an extra one or two per cent of productivity? Hand on heart, I can tell you this one would not knowingly have done so," Haldane said.
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This estimate dwarfs the 250,000 jobs Bank of England governor Mark Carney claimed were saved by the post-Brexit vote stimulus package the central bank launched in August, which included cutting interest rates from 0.5 per cent to 0.25 per cent.
Haldane pinned his 1.5m figure on the extra 10 per cent of companies he calculated would have gone bust had interest rates not been slashed.
However, he also noted most of the companies which were able to keep going thanks to rock-bottom rates were effectively zombie companies and therefore had low levels of productivity.
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The economist also warned getting productivity back on track would be tricky and could not be solved through quick fixes.
"Productivity is a gift for rising living standards, perhaps the greatest gift," he said. "It is not, however, one that always keeps on giving, as recent events attest. Whether in supporting living standards, or in shrinking their distribution, tackling the global productivity puzzle is among the most pressing public policy issues today."
Haldane was among the eight Monetary Policy Committee members who opted to keep interest rates on hold last week. Only Kristin Forbes voted to raise rates.
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However, the Bank's chief economist confessed back in January it had fallen foul of a "Michael Fish moment" by forecast a gloomy future for a Brexit-voting UK which subsequently failed to materialise.
Figures released earlier this month from the Office for National Statistics showed unemployment has now reached its lowest level since 1975. However, experts told City PM they were cautious about the sluggish wage growth also picked up in the statistics.