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Bank deputy governor tells savers to spend

Bank of England deputy governor Charlie Bean says the Bank’s current monetary policy is aimed at getting people to spend their savings.

In an interview with Channel 4, Bean says that at a time of historically low interest rates it makes sense for people to “eat into their capital a bit”.

Bean says the lower returns for savers are a policy aim, rather than a by-product of low rates.

He says: “I wouldn’t want to call it a side effect. I think it’s important to realise that actually it’s a key way that monetary policy affects the economy by affecting the incentive to save.”

“What we’re trying to do by our policy is encourage more spending, ideally we’d like to see that in the form of more business spending but part of the mechanism that might encourage that is having more household spending so in the short term we want to see households not saving more but spending more.”

Bean says savers should bear in mind that they benefited from high levels of interest rates in the past and the same will apply in the future.

Pension consultant Ros Altmann says Bean’s comments reveal a “short-sighted policy” from the Bank of England which undermines the interests of savers.

She says: “This will not solve our problems and, with an ageing population, damaging pensions just means that more people will end up in poverty, fall back on benefits or be forced to take more risks with their money that could wipe out their capital.

“The Bank of England needs to urgently re-examine its short-sighted policy stance. Growth at all costs is not a recipe for long-term success, indeed isn’t that how we got into the crisis in the first place?  Central banks kept interest rates too low for too long, encouraged too much borrowing, facilitated financial speculation and led people to believe we could all live beyond our means without worrying about the future consequences. It may make people feel a bit better for a while to keep spending and not saving, but this will lead to an even worse crisis in future.”

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. Isnt it this ‘spend’ policy that got us into the mess in the first place. Why should prudent people bail out the spendthrifts?

  2. Just how irresponsible is this ! ! ! It is the culture of Spend, Spend, Spend instead of save up for it and buy it when you can afford it that got us ALL into this mess in the first place. . . . if you can’t afford it, don’t buy it. and if you have not saved and budgeted for it, how are you going to afford it ! Should apply to Banks and Governments as well ! ! !

  3. I personally have my own savings and despite low interest rates I will not use this to purchase anything uneccesary in case I need the money as a result of redundancy or other financial changes.Surely anyone in this economic climate is going to be cautious about spending capital on anything not essential i.e a new car. The theory therefore is not applicable at this point in time unless I am being over cautious?

  4. I find this comment on the BoE’s policy to be highly irresponsible. Where is the reward for exercising a degree of prudence? If a person had spent all or most of their savings how would he/she have survived the last 2 or 3 years? Getting into personal debt through reckless spending is bad enough but then to penalise prudent savers and now exhort these savers to spend just seems insane and negligent.

  5. What a cheek !
    They are deliberately allowing inflation to eat into the debt while keeping the interest rates as low as they dare for as long as they dare to allow the debt to be repaid at the lowest possible cost. And then as Sean says encourage savers to spend – on imports mostly no doubt on tat that will definitely be worthless in one or two years time -so they have even less security because they are not getting a return on cash!
    The political and civil service elite have really wrecked this country and have no ideas or solutions as to how to get the economy moving other than more of the same bad policies that got us here in the first place.
    Mr. Bean indeed.

  6. Unless this has been edited in an odd way from a much larger document this really is not fool hardly or illinformed. Its a clear statement of thinking of a senior employee of the Bank of England and all UK citizens.

    Instead of making such comments perhaps the Bank of England should simply write off some debts and then the folk that were in debt would be able and would want to go out and spend.

    What a crass statement, I bet he will be getting a roasting very soon. Has he made similar comments before?

  7. I thought we had seen the back of Gordon Browns irresponsible spend, spend,spend policies when he buggered back to Scotland.
    Now we have one of his minion hangovers sprouting the economics of the deranged

  8. What a crass out-of-touch idiot – Bean by name, bean by brain. And deputy governor too – god help us!

    So savers should “bear in mind that they benefited from high levels of interest rates in the past and the same will apply in the future” should they?

    Well, perhaps Mr Bean does not realise that not everyone has lots of “capital” like him that they can exercise “a bit of sense” to “eat into” but might think it is better to pay off debts and mortgages while they can and before the government’s spending cuts really hit home and they lose their jobs.

    Clearly, he is feeling nice and secure in his comfortable job issuing pointless statements and looking forward to enjoying tucking into his ample capital.

  9. I find this so called “policy” “gob-smackingly” stupid.

    Ros Altmann for the deputy governor’s job!

  10. Crazy. And the diametric opposite of what the new government has been saying about restoring the UK’s savings culture in the wake of 13 years of destruction on the part of Labour. To hell with NEST and all that rubbish ~ let’s just spend, spend, spend (mainly on our almost completely unregulated collection of credit cards). What planet is this guy on?

  11. Isn’t this giving advice to consumers?

    Is he regulated and who pays if people lose money as a result of this advice !!??

  12. what a stupid statement by a man in whom we should trust the future of our currency. He destroys savings values to protect over borrowed consumers and now says that the savers should spend, Whee does he think that the bank deposits to underpin lending will come from?
    He should quit or be fired as he us underminung the so called special position of the B of E. his approach validates his name as a comedian

  13. I find the comments depressingly ill-informed.

    Interest rates are a tool to control demand – if demand is weak then rates are lowered to encourage expenditure. Wealth is created by circulating money in the economy – and the investors among you will know that wherever in the world that money is spent there’s a strong liklihood that a UK listed company, and by extension a UK pensioner, will benefit. Saving takes money out of the economy and at the moment that’s the last thing we need. There’s little point in embarking on QE2 if a large chunk of the extra liquidity is siphoned off into bank accounts where it will sit earning two thirds of very little.

    Come on chaps – fewer knee-jerk reactions and more analysis please!

  14. Richard Ross – Sorry to have to disagree with you but QE has not been pushed out into the economy. It has been used by banks to increase their balance sheet strength, a lot has fled abroad on repayment of debt , and a lot has been traded by banks in the markets hence the reflation of asset prices. Very, very little has been lent out to customers of the banks and of that money lent even less has found its way back into savings accounts to just sit there. The undirected QE experiment has not increased the velocity of money in the economy indeed it has not reached the “main street” either here or the US. Which is why they are considering QE2.
    Without rules being imposed on this new debt then the same will happen again we will see further asset reflation further bank balance sheet strength but very little lending new money to industry and SME business. It is people like Mr. Bean who decide and control these things should be accountable rather than suggesting savers spend what little security they have away on mostly imported goods or export cash out of the economy by going on holidays.

  15. The recession should have signalled the end of the binge borrowing and excessive spending culture – so it is worrying that cautious individuals who have put some money aside for a rainy day, or their later years, have apparently been advised to throw caution to the wind and dip into those savings in an attempt to prop up an ailing economy.
    For years we have witnessed unprecedented borrowing levels by individuals. This – and the consequent spending that took place – was largely to the benefit of the High Street, but also contributed to record levels of personal insolvency.
    We have also seen unprecedented levels of public sector borrowing. In the same way that the Government’s Comprehensive Spending Review (CSR) will cut spending to ensure the state reduces its debt levels, as a society we also need to learn to live within our means. Now that over-committed consumers are unable to prop up the High Street, cautious investors should not help to boost the economy by raiding their own savings pot.
    David Thornhill, partner, FRP Advisory

  16. Sorry Richard but we all understand the economics of lowering interest rates to increase spending (thats what the great Labour economic miracle was built on remember). However, if people did spend it would be mainly on foreign consumer goods which wouldnt really benefit the UK economy.

    Also you have missed the main point here which is why should people who have saved prudently over the years now bail out those that have spent irresponsibly over the same period.

  17. I will spend my savings. On gold.

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