The Bank of England may have to cut interest rates rather than raise them as its next move because of the risks of inflation remaining low and a crisis in emerging economies hurting world growth, BoE Chief Economist Andy Haldane said on Friday.
He said in a speech that softening employment figures and weakening surveys on manufacturing and construction output suggested growth in Britain was slowing in the second half of the year and inflation might not pick up as expected.
Furthermore, problems in emerging markets could drag on growth in Britain and the headwinds for those economies were unlikely to abate any time soon, Haldane added.
"The balance of risks to U.K. growth, and to U.K. inflation at the two-year horizon, is skewed squarely and significantly to the downside," Haldane said.
The case for raising interest rates was "some way from being made," he said. "Were the downside risks I have discussed to materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support U.K. growth and return inflation to target."
Haldane has previously suggested that the BoE might need to cut rates to help boost growth.
He is considered the most outspoken supporter of possible further stimulus among the Bank's rate-setters.
At their policy meeting this month, the members of the Monetary Policy Committee voted 8-1 in favour of keeping rates on hold with the sole dissenting voice, from Ian McCafferty, in favour of an increase.
Haldane also said central banks needed to consider the risk that interest rates might remain persistently lower and they should "think imaginatively" about possible solutions such as raising their inflation targets or making bond-buying programmes a permanent part of their policy tools.
Both options had their downsides and a third option would be for banks to charge a negative interest rate on currency via a state-issued digital currency, he said.