LONDON (Reuters) – Investors may have over-reacted to signs of economic slowdown, although they have been right to price in weaker global growth prospects, the Bank of England’s chief economist said in a Sunday newspaper interview.
“What we have seen over the past week is financial markets catching up with the data,” Andrew Haldane told Britain’s Observer newspaper.
“Possibly over-reacting to the data but certainly catching up, because I think there has been a drip, drip, drip – globally I mean – of slightly below-par news for several months.”
In a wild week for international markets prompted by fears about a recession in Europe and weaker growth globally, some readings of British government debt prices at one point implied markets expected no interest rate hike by the Bank of England at all next year.
That represented a sharp change from some recent expectations that key rates would start to rise from their record low of 0.5 per cent, possibly in November.
Markets ended the week pointing to a rate hike around mid-2015 after Haldane said in a speech on Friday that kind of timing might not be a bad bet, given the slower growth outlook.
Haldane, who became the BoE’s chief economist in June, also told the Observer that the Bank needed to improve its economic forecasting after it had proved over-optimistic about how quickly Britain would recover from the financial crisis.