The chances of Britain's economic growth remaining weak over the next year have risen, the Bank of England's deputy governor, Charlie Bean, warned yesterday. He noted that while the recovery appeared broadly intact earlier this year, "as time has passed, so it has seemed less secure".
The warning was underscored by figures showing that growth in the key services sector had slowed more than expected. Activity on the Markit/Cips purchasing managers' index fell to 51.3 for last month, lower than the 52.9 reading seen for September and below forecasts of a dip to 52. The figures follow earlier data showing that the manufacturing sector had contracted at its fastest pace in more than two years in October.
Speaking in London yesterday, Mr Bean said the Bank's decision in October to revive its programme to pump more money into the economy had come as it recognised the weak outlook. The move will see the Bank inject £75bn into the economy via purchases of government bonds.
Mr Bean highlighted "two primary drivers" of the slowdown, namely the market tension caused by the eurozone banking and debt crisis, and the rise in energy and other commodity costs, which has "added to the squeeze on real household incomes". But he rejected the idea that measures such as sending households a voucher to spend in the shops would constitute a better stimulus.
"This may sound like a good idea, as it seems to get the money quickly into action in stimulating demand... But economic theory, as well as considerable empirical evidence, suggests that such a temporary increase in disposable income would be likely to be very largely saved," he said. "Only households that wish to borrow, but presently cannot, would be likely to increase their spending materially."Reuse content