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ECONOMIC WOE TO 'DRAG ON FOR SOME TIME'

Charles Bean: Grim warning

Tuesday August 26,2008

By Alison Little

Comment Speech Bubble Have your say(7)

A BANKER leading the battle to save Britain from sinking into recession yesterday warned that the economic downturn is as bad as the 1970s.

Charles Bean, deputy governor of the Bank of England, forecast that problems would “drag on for some considerable time”.

But he was hopeful the situation would improve – and said he was “keeping his fingers crossed” that the economy will pick up next year.

His warning prompted another senior banker to call on the Government and the Bank to take more action to avert potentially years of problems.

Mr Bean gave his gloomy forecast after last week’s news that economic growth has ground to a halt, confirming fears Britain is on the brink of recession.

Bank of England governor Mervyn King has already warned that the economy is in for a difficult and painful period because of a combination of high inflation and rapidly slowing growth.

He said in the Bank’s last inflation report two weeks ago that there “was bound to be a quarter or two” of negative growth.

Mr Bean, speaking from a conference of central bankers in America, said: “We have got our fingers crossed that things will improve.

“But there is a recognition that there is still quite a long way to go yet. It looks as if it will drag on for some considerable time further yet.

“If people realise that this is just a transitory period of subdued growth, we will get through the other side and growth will resume to more normal levels.”

He said that the mood of the meeting was “one of considerable caution”.

But the most important message, he said, was that the crisis would come to an end and too much significance should not be placed on the latest figures showing Britain’s economic growth had halted.

He admitted, though, that it was a “testing’’ time and families would feel the squeeze.

Just as markets looked as if they were improving “another grenade explodes”, while in terms of “shocks” hitting the economy, things were “at least as challenging” as Britain experienced in the 1970s, he said.

But if commodity prices remained stable or even dropped, inflation should start falling next year and credit would hopefully become more available. “These two factors will help to ensure growth will start again,” he said.

Sir Peter Burt, former chief executive of the Bank of Scotland, responded by calling for firmer action.

Sir Peter warned that it had taken years to recover from similar losses of liquidity in the past. And while he hoped Britain’s problems would not go on for years, “if we just cross our fingers maybe that’s what we will get”.

He said he had never seen the availability of credit drop as suddenly and urged the Bank to state, as it had in the 1970s, that it would not let any banks fail or creditors lose money.

“The Bank must be prepared to act as lender of last resort. We cannot afford to let a major bank collapse,’’ he said.

Sir Peter criticised the decision to insist that nationalised Northern Rock should repay £25billion to the public purse over 12 months. It was too short a time and had had the effect of taking billions of pounds out of the mortgage market.

He also called for a review of new rules requiring banks to make prompt declarations of possible losses. He said it could force banks to “retreat into their shells” and stop them lending.

“The current rule is like pouring petrol on a bonfire. It helps the blaze go out more quickly but a lot of people get singed,” he said.

Most experts are now predicting a recession, defined as two consecutive quarters of economic contraction.

David Kern, economic adviser to the British Chambers of Commerce, said: “We certainly believe that the impact of the credit crunch is going to take some time to sort out and it may be prolonged. But if the right measures can be taken by the Government and the Monetary Policy Committee, they can avoid a major recession.”

It looks as if it will drag on for some considerable time further yet

Charles Bean

THE ECONOMY

26.08.08, 7:17pm

as for the economy " ya aint seen nothing yet", anybody who thinks everything is gonna be ok is sadly mistaken, this is just a mild wind thats blowing at the moment compared to the storm thats coming.

• Posted by: yasny23 • Report Comment

MR BEAN

26.08.08, 7:12pm

its not rocket science !!!! if mr bean and other so called economists/bankers were worth their money they would have said when mr brown said he had removed boom and bust that mr brown was talking b+++++ks. i knew mr brown was and i dont regard myself as having too many branches in the top of my tree.

• Posted by: yasny23 • Report Comment

ECONOMIC WOE

26.08.08, 6:59pm

Look here Mr Bean of the Bank of England can you and your ilk please come up with something better to cure the economic woe than 'I have got my fingers crossed!!' We the public expect a little more effort as we do pay the wages!!

• Posted by: Daveyboy • Report Comment

IT IS A SIMPLE MANOEUVRE TO CHANGE THE SYSTEM

26.08.08, 3:03pm

I have been saying it for a long time now; change the way you work and are paid and the only Taxation that can be Legally enforced is your Local Council Tax.
If you look at this-: http://www.atflynn.co.uk
you will see that in 2006, I posted a comment about the oil, gas and power market being rigged. In fact I posted more than one warning.
Enough for now, Regards, ATFlynn.

• Posted by: Watchkeeper • Report Comment

ECONOMIC WOE TO 'DRAG ON FOR SOME TIME'

26.08.08, 1:52pm

Mark my words !

THE ECONOMIC WOE WILL CONTINUE DEVASTATING THE BRITISH PEOPLE WHILST EVER THE NEW LABOUR INCOMPETENCE PARTY ARE RUINING THE COUNTRY.

• Posted by: EmperorMing • Report Comment

EXPERIENCIA DOCET

26.08.08, 1:30pm

Emma Micawber, wife of Wilkins Micawber, a character in Dickens’ David Copperfield, should she live today, would be a supporter of our government. She was an eternal optimist whose maxim “experientia docet” (one learns by experience) was in perpetual conflict with her continued loyalty to a husband who had brought about her ruin. Although Wilkins would readily lecture on basic economics, he seemed incapable of its practical application and thus lived his whole life in the expectation that “something will turn up”. Micawber was a comical bumbler who was well intentioned, but whose personal ideology prevented him operating efficiently in the real world. This meant that the precious heirlooms his once wealthy wife had brought to her marriage had been pawned, the family were being hounded by creditors and their lifestyle reduced to penury.

Dickens was adept at using his characters allegorically to illustrate the core folly of the politicians of his day. Unfortunately, today’s lot seem to be of the Micawber school of Economics. They are perfectly aware that the amount of public money available for them to spend has limits, but they are completely unable to determine where those limits are, let alone work within them. They live continually if the expectation that some circumstance, hitherto undetected, will rise up and present them with a solution to the problems their profligacy has caused. This attitude operates both at local and national levels.

What we need are politicians who can think constructively with regard to the conditions of the twenty-first century where we have, at least in the western democracies, a more sophisticated electorate than those of Dickens’ day. The ideologies of the present lot, both conservative and labour belong to the previous two centuries. They do not have a place in this one and until we get rid of them no further progress is possible.

• Posted by: Ygdrasil • Report Comment