Bank of England Policy Hasn't Worsened Inequality, Haldane Says

(Bloomberg) -- The Bank of England’s chief economist has issued another defense of monetary policy loosening in response to the financial crisis, saying it didn’t contribute to inequality.

Responding to criticism that record-low interest rates hurt savers and quantitative easing did nothing to help the less well off, Andy Haldane said those actions kept people in jobs and put money in their pockets.

“The loosening of monetary policy after the crisis appears to have delivered significant financial and welfare benefits to almost all cohorts of the U.K. economy, albeit often through different channels,” he said in a speech on Tuesday. “There is nothing to suggest monetary policy has had significant effects on either income or wealth inequality in the U.K. over recent years.”

Haldane measured the impact of monetary policy on different parts of society, and found that in the longer term, the average household has seen an income gain of around 1,500 pounds ($2,100) a year from the BOE’s policy loosening and its effect on jobs and wages.

He said the measures led to larger income gains for the young because of improved job prospects, while wealth gains have been highest in money terms in older age groups -- as they tend to have a larger pool of assets.

Critics of the BOE’s policy since the crisis say QE fuels asset bubbles and increases inequality, and that years of low interest rates have pushed down returns for savers. When the U.K. lowered its key rate after the Brexit vote in 2016, even Prime Minister Theresa May weighed in, saying that loose monetary policy had had some “bad side effects.”

Haldane does concede that monetary policy does have “potent effects” on the economy over the short term, including, possibly, the distribution of resources. Rate changes redistribute interest payments between borrowers and savers, and asset purchases affect those with assets differently than those with debt, he said.

As to what this means for policy makers, Haldane said there’s a case for making assessments of any distributional impacts on a regular basis so that people can understand the purpose and impact of policy on the economy and their individual finances.

--With assistance from Emily Cadman

To contact the reporter on this story: Jill Ward in London at jward98@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, David Goodman

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