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.”