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UK economists warn of British ‘lost decade’

UK economists have warned that the UK faces its own ‘lost decade’ as it comes out of its longest ever recession.

The Monetary Policy Round Table, made up of economists from the Bank of England and the Centre for Economic Policy Research warned that once the UK comes out of its recession it may be as long as eight years before consumers begin borrowing and spending. They compared the UK’s possible problems with those of Japan, which is still to emerge from what economists call the “lost decade” after its economic crash in the nineties.

The report from the round table said that some participants believed that the UK recession would lead to a protracted period during which consumers would be averse to borrowing and would seek to reduce their debt leverage.

It said: “Participants pointed to previous episodes of significant balance sheet restructuring – in the United Kingdom, Japan, Sweden and Thailand – which had lasted around six to eight years, although the unprecedented nature of the current recession limited the insights from these historical comparisons.”

Other participants disagreed and were confident of a turnaround in consumer activity – they argued that most savings over the recession had been channeled into a further accumulation of housing assets, a fact corroborated by the recent rally in house prices. But the optimists conceded that this would not be a speedy process.

The report said: “A recovery in the supply of mortgage credit would likely lead to a reduction in the savings rate, and hence slow the deleveraging process. That, however, would also take time – the banking system remained significantly impaired, and although banks had begun to repair their balance sheets, significant further adjustment was required.”

The round table was split on the subject of quantitative easing – while some were confident that the £200bn injection had helped the economy avoid a depression others argued that there was scant evidence to show that the stimulus had helped the real economy.

Participants also noted that the fiscal plans outlined in December’s pre-Budget report contained “little news about the timing, composition and extent of any further consolidation in the public finances”.

It said: “Many thought that the PBR projection of a sharp rise in public sector debt relative to nominal GDP would leave little headroom for any further fiscal expansion.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. QE is just a means of keeping prices artificially inflated by providing more cheap credit – a second fix of the drug that caused the problem in the first place.

    What we should really ask is “Is there more to spend our money on” not “are assets worth more on paper?”

    When viewed in that light, the entire housing boom is revealed for the fiction that it is.

  2. Andy, what is money in the world of fractional reserve banking and fiat currencies?

  3. It cannot be anything other than a lost few years as far as I can see.

    They should re-shape unemployment benefits, so that they only last 6 months maximum. I fail to see why there are 3 million unemployed and yet there are still, even now, 1 million job vacancies in the UK. Surely a percentage of those can be filled by the 3 million?

  4. this is utter nonsense.
    the japanese lost decade was because their existing banking and manufacturing industries could no longer compete.
    our banks may be hosed, but we have no appreciable manufacturing industry (in comparison to the past – we are of course a member of the G7). so whilst japan couldn’t do anything about its failing manufacturing sector, we have the perfect void in which to grow a new one.
    think about how germany had to rebuild after ww2. no industrial base = MASSIVE OPPORTUNITY.
    i despair at people’s desire to be doomy without actually taking note of the most simple basics.
    OPEN YOUR EYES AND YOU WILL SEE THE MOST ENORMOUS OPPORTUNITY EVERYWHERE.
    QUIT WHINGING. GET ON WITH IT.

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