Bank 'Gloomier' As Economy Woes Hit Markets

The Bank of England's chief economist has spoken of his concerns for the UK's economic outlook as it writhes in both "agony and ecstasy" alongside weaker global growth.

Andy Haldane told a business audience the Bank may need to keep interest rates lower for longer than previously thought to reduce the chance of the economy slipping into long-term stagnation.

He cited greater financial and political risks and the danger that wages and productivity might continue to fail to recover as forecast.

"Put in rather plainer English, I am gloomier," he said.

"This implies interest rates could remain lower for longer, certainly than I had expected three months ago."

His remarks came at the end of a week in which stock markets tumbled and pushed back their expectations for the timing of the first UK rate rise to towards the back end of next year.

Fears of recession in the eurozone, weakness in the US and China and an end to the US Federal Reserve's quantitative easing (QE) programme contributed to the sell-off that saw £50bn wiped from the value of the FTSE 100 in just two days.

The London market was over 1% higher on Friday and the pound lost half a cent against the dollar in the wake of Mr Haldane's comments.

He said Britain's economy was "writhing in both agony and ecstasy" amid the volatility and raised the spectre of "secular stagnation", meaning a long period of negligible growth as a result of the world's woes.

"If there is genuine uncertainty about the path of the economy, the optimal policy response may be to avoid the worst outcomes", he said.

The UK's economy has been growing steadily this year - outperforming the G20 - with growth of 0.9% measured in the second quarter and unemployment falling to a 6% rate .

But wage growth remains muted and inflation is falling - with both factors a problem for a recovery largely built on consumer spending.

While they formed part of Mr Haldane's argument on UK policy, the country's economic performance is in stark contrast to that of its biggest trading partner, the eurozone.

The IMF recently forecast a 40% chance of eurozone recession - with even Germany on the brink - as the area battles low inflation, high unemployment and higher risks associated with the west's sanctions against Russia over Ukraine.

It was revealed on Thursday that five nations using the single currency had slipped into deflation while Greece's borrowing costs rose to 9% - a level seen as unaffordable again amid concerns relating to its bailout programmes.

The European Central Bank is under pressure to launch its own programme of QE to provide stimulus.