By Max Clarke
The United Kingdom continues to save too little, posing us with a choice: rebalance the economy, or live at the expense of future generations.
This was the stern message delivered by the Bank of England's Monetary Policy Committee member, Dr. Martin Weale, at a speech yesterday for the Doncaster Chambers of Commerce.
A long-standing hawk, Weale has long advocated an interest rate rise in order to better curb the UK’s slipping inflation rates. Crucially, recognising the severity of the economic challenge facing the nation, Weale has abandoned his strict fiscal outlook in favour of a more dovish approach, advocating keeping interest rates low in order to stimulate the business recovery.
“Higher asset prices and lower interest rates are also likely to support business investment. The extra demand which results will both support output and help to underpin the rate of inflation,” said he.
Echoing Bank of England Governor, Mervyn King following the last quarterly inflation report, Weale alluded to increasing levels of asset purchases. In a bid to encourage growth, the Bank of England can purchase debts from other banks, helping to stimulate lending in a controversial process known as quantitative easing (QE). Currently purchased assets stand at £200 billion, though this figure could be set to rise. QE, effectively a cash injection into the economy, can increase inflation, further delaying the recovery.
Saving, noted Weale, is not solely the responsibility of Government.
“If we carry on as we are without increasing saving eventually people, and particularly old people, will be disappointed with their living standards.”
Currently there is a gulf of 10% between what our current lifestyles consume, and what our economy can provide.
“We could deal with the shortfall of resources by working longer,” suggested Weale. “But even if working life is extended by three years immediately, there will still be a shortfall of around six per cent in total resources,” he cautioned.
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