Ex-MPC member says rates will stay low until 2021

David Blanchflower Image copyright Bank of England
Image caption David Blanchflower: Global economy "feels a little bit like 2008"

Interest rates will likely fall further in Britain and remain at near record low levels until 2021, a former Monetary Policy Committee member says.

David Blanchflower was on the MPC in 2009 when quantitative easing was first introduced and rates were cut to 0.5%.

Now he says growth in Britain is still very weak and the global economy "feels a little bit like 2008."

The next rates move would be down not up as many expect, he added.

Professor Blanchflower served on the MPC - which sets UK interest rates - at the height of the financial crisis, between 2006 and June 2009.

In that time the Bank Rate was cut from 5.75% in 2007 to 0.5% and Quantitative easing (QE) was introduced for the first time in the history of Bank of England.

Professor Blanchflower described the backdrop to the committee's decision in March 2009 to cut rates to 0.5% as catastrophic. He said the MPC at the time had wished to avoid a death spiral.

Britain was plunged into its deepest-ever recession in 2008 as confidence in banks collapsed and investment dried up.

"We cut rates in November 2008 by 150 basis points (1.5%). It was clear that we should have cut by more but didn't because of the panic that it might have caused," he said.

"It was absolutely clear that this (the financial crisis) was something we had not seen in a generation. We learned that the scale of the shock was enormous."

Research from the pension advisers Hargreaves Lansdown suggests average mortgage rates are 31% lower than before the crisis, while savers may have lost £106bn due to record low rates.

Last month, the governor of the Bank of England, Mark Carney, told MPs on the Treasury Select Committee that interest rates were more likely than not to increase.

He added, though, "if risks were to materialise, if the goal of a situation were to intensify to the downside, that would have implications for the path of policy."

A Bank of England spokesman said: "The Monetary Policy Committee responsible for setting interest rates will do the right thing at the right time on rates and base any future decision on the factual data."

The Treasury declined to comment.

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