Britain's economic recovery has been weak because of the destructive legacy of overseas investments made by our largest banks, according to a senior Bank of England policymaker.
Ben Broadbent, a member of the interest rate setting Monetary Policy Committee, said yesterday that the cause of the UK's disappointing growth since the recession has not been excessive borrowing by the public, as sometimes claimed, but foolish foreign lending in the boom by financial institutions.
"It is hard to imagine that the subsequent tightening in domestic credit supply, or the weakness of UK growth, would have been as severe had its banks not had such extensive overseas balance sheets going into the crisis," Mr Broadbent' left, said at a speech in London.
He pointed to the fact that three-quarters of the losses of UK banks have been incurred on their non-UK assets. Mr Broadbent also noted that the UK's net overseas liabilities are moderate. This is because the large debts of British households are mostly matched by assets in the form of housing. Mr Broadbent said this meant UK interest rates could be safely raised if "overseas risks" abated.