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Lord Turner: Prepare for ‘indefinite’ low interest rates

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Former FSA chairman Adair Turner has warned the UK faces “almost indefinite” low interest rates without radical action.

In an interview with the BBC, Turner said interest rates may not rise to the Bank of England’s 2 per cent target before 2020.

The Bank has kept the base rate at 0.5 per cent since March 2009.

Turner told the BBC: “We don’t have adequate growth. We don’t have adequate inflation to support adequate growth, or to grow our way out of the debt problems.”

“It may not come to a crisis like 2007/8 at all. We may simply be stuck in a chronic malaise which never becomes hyper acute in the same way that it did in 2007/8 but it equally problematic for the global economy,” Turner told the BBC.

“Because we don’t have adequate growth. We don’t have adequate inflation to support adequate growth, or to grow our way out of the debt problems.

“In that environment, the crisis may come more on the political side. It may come more that the reaction of people to the failure of the capitalist system to deliver adequate growth is populist movements and political instability.”

As a result, the former FCA chair said that policymakers need to look at more radical policies to spur growth, going beyond the current tools of zero, and negative, interest rates and quantitative easing.

“Although they are better than nothing, and if I had been on the Monetary Policy Committee of the Bank of England, I would have voted for them, I have become convinced that they are simply not working enough and they’re not going to work.

“And that they are based upon some theories of what is going to work which are incorrect.”

He went on to say: “I don’t think there are any reasons to believe that we are on a path which is taking us back to what we thought was normality any time in the next two, three or maybe five and even ten years.”

Turner, who chaired the FSA between 2008 and 2013, also warned the fast-growing peer-to-peer lending sector risks increasing losses, in part because individual savers have been prepared to take bigger risks than banks with their lending, in order to make bigger returns.

He said: “The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses.”

The former FCA boss also noted with concern that speculation around the possibility of the UK leaving the European Union is “causing major destabilisation at a global level”.

He sais: “There is a great deal of nervousness that a UK vote for Brexit [to leave the EU] is another layer of uncertainty in an extremely uncertain world – uncertain economically and uncertain politically.”

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Comments

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  1. Stock markets falling 27% since April 2015, Rangold Resources posting record profits with shares above £50 for first time in 5 years. Gold on the way up again whilst Buy to Lets forge ahead relentlessly. Are we heading somewhere again…

  2. @ Lord Snooty
    I’m inclined to agree with Lord Turner’s “It may not come to a crisis like 2007/8 at all”, as that recollection is (surely) fresh enough in the minds of the decision makers so as to avoid the levels of ‘denial’ that precipitated the previous crisis!
    It certainly bears out my original assessment of ‘Forward Guidance’ for the crock of mis-information it was! Hopefully Mark Carney has learned from that fiasco!

  3. He has some nerve harping on about this risk and that risk. He couldn’t manage it while he was at the FSA so what qualifies him to speak knowledgeably about this now? He really winds me up. The article kept referring to him as the former chair or Ex Chair of the FSA. Why not give him his current title???? What does he actually do now? Why is MM giving this man any column inches anyway?
    He says “The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses.” Good one but it is hardly going to be a fraction of the scale of the banking crisis is it? Depending on which search engine you use the average P2P loan in the UK is anywhere from £5,500 to £7,200. Even if the whole thing implodes on itself, it is hardly going to see a return to recession in the whole economy with huge job losses. The average lender is therefore hardly likely to be kicked out on the street for non payment of mortgage or credit card etc.
    On one hand he says if he had been on the MPC he would have voted for the methods the BoE deployed and in the next paragraph he says the methodology that the decisions were based upon are flawed. So, Lord Turner, knowing of these flaws, why on earth would you have voted for them???? He thinks different measures are needed, well put your conviction out there…. What else would you have suggested and on what basis. Very typical of his type – slag off those charged with doing something but have no credible alternative to argue with. Truly pathetic. Lord Turner, you are not on the MPC (thank God), nor should you be. With the track record you have from your time running an organisation which really had no idea of what was going on. When it did become aware of it, had no idea of how to handle the situation, you should be let nowhere near anything of any responsibility of any kind.
    He obviously misses the public attention of being in the media or press and is now spouting about ridiculous headlines in order to get his name in lights.
    AHHHHHHHH!!!!!!!!!!!!!!!! This guy really winds me up. Keep him away from MM at all costs, please, I beg of you.
    Rant over, feel better and now off to do what I started before nearly exploding.

  4. He does have a knack of not really saying much
    Useful in a world of meetings legacy issues
    Social empowerment n all – is he off to the board of bbc or maybe an eu commissioner of something or other – believe there was actually a commissioner for traffic cones

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