Britain will have to wait for the boom times to return despite “some signs of a pick-up” in the economy, Bank of England rate-setter Paul Fisher declared today.
The Bank’s markets director — one of three monetary policy committee members voting for an extra £25 billion in quantitative easing to boost growth — said the UK’s weak recovery could last for another three years.
His comments come days after the IMF warned the economy was “still a long away from a strong and sustainable recovery”. The FTSE 100 index’s surge towards all-time highs has meanwhile fizzled out, with shares virtually flat today.
“Most of the economic problems we face will be eased as growth recovers but, in my view, a return to boom conditions is unlikely in the UK any time soon,” Fisher, pictured, said.
The rate-setter said virtually every sector of the economy — households, banks, businesses and the public sector — was expecting to be worse off compared to before the financial crisis, and had hit growth by cutting spending to pay down debts, tackle pension deficits or save for deposits.
He added that the UK may be only “two thirds to three quarters” of the way through the necessary process of balance-sheet adjustment, which has seen the economy grow at trend for only six of the past 21 quarters.
“To be clear, we do not need to be 100% finished before growth strengthens at all, and we may be beginning to see some signs of a pick-up. And I think this prognosis is consistent with our Inflation Report central projection of a gentle, albeit sustained, recovery over the next three years. That is a somewhat sobering, but not calamitous, outlook for real growth,” he added.
Fisher said the Bank’s loose monetary policy stance “should generally be helpful to balance-sheet rebuilding” but added that he was “not convinced” of the effectiveness of rate cuts below their current 0.5% record low. “Further cuts may not feed through to higher consumption in the normal way and some of the effects could even be perverse,” he added.
Barclays chief UK economist Simon Hayes said: “Mr Fisher’s stance on interest rates implies that the chances of a rate cut on the arrival of new BoE governor Mark Carney are rather low.”