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&#39Bridging savings gap could spark recession&#39

Influential thinktank the Institute for Public Policy Research has rubbished the ABI&#39s claims of a £27bn savings gap, saying the research ignores the effect of taking that amount of money out of the economy each year.

Writing in this week&#39s Money Marketing, IPPR senior economist Peter Robinson says the savings gap identified by consultancy Oliver Wyman & Company in research for the ABI does not hold water bec-ause removing that kind of money would push the economy into recession.

He said it would amount to savings worth 2.5 per cent of GDP being withdrawn from the UK economy each year. As the savings would be matched by an equal fall in consumption levels, this could lead to companies cutting back on their investment.

Robinson says this could in turn result in the economy shrinking, leading to a slump rather than greater prosperity, as suggested by Oliver Wyman and the ABI.

Oliver Wyman director Richard Surface rejects Robinson&#39s claims, saying any shortterm reduction in consumption will be made up by the increase in future income levels.

Robinson says: “This claim by the ABI has become a familiar feature of the landscape. It is important, therefore, to understand why the whole concept of a national savings gap might potentially be highly misleading.

“The simple story of the £27bn savings gap does not appear to be matched by any macro-economic story at all. How do proponents of the savings gap expect the economy to react to a fall in aggregate consumption equal to over 2.5 percentage points of GDP?”

Surface says: “The cost of ignoring the savings gap is far more dangerous than any short-term reduction in consumption.”


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