Fears that Britain faces years more of weak growth were raised by a leading Bank of England policymaker when he warned that adjustment to the tougher post-crisis climate was only two-thirds to three-quarters complete.
Speaking in Cardiff on Friday, Paul Fisher said there had been nothing to compare with the recent sluggish performance of the economy since modern quarterly growth data was first produced in 1955.
"It is as if the different groups within our society – households, businesses, banks and the government – have all decided that their future financial positions, on average, will be worse than they thought before the crisis", said Threadneedle Street's director for markets.
Fisher added that the willingness of people to accept cuts in their living standards was explained by their downbeat view of the future.
"One possible household reaction to lower expected incomes is for people to try and work harder, and certainly to avoid unemployment if at all possible. This means being willing to stay in (or find) work even though the benefits from that – real wages – are being squeezed.
"The acquiescence of the UK labour force in accepting lower real wages is quite remarkable for those of us who grew up during the wage-price spirals of the 1970s and 80s.
It explains in part why unemployment has stayed much lower than we would have expected, given the weakness of output growth. Much of the labour force has priced itself into work."
As one of the three members of the Bank's monetary policy committee pressing for additional stimulus, Fisher said growth was likely to remain below trend until there had been further adjustments to the post-crisis environment.
"That includes households, the public sector, banks and other businesses. In my view we are maybe two-thirds to three-quarters of the way through in each case, varying both across and within sectors."
He added that the historical norm was for the economy to expand by 0.6% a quarter but that had happened only five times in the 21 quarters since national output peaked at the start of 2008.
"Even compared with previous examples of financial crisis – whether at home or abroad – the UK economy has been puzzlingly weak for a long time."
Fisher said banks had been trying to repair their balance sheets by restructuring, reducing borrowing in the wholesale money markets, improving their liquidity and building up capital buffers.
"I believe every large UK lender has at least one non-core portfolio they are running down, and commercial property lending is typically a common factor."
Together with David Miles and Sir Mervyn King, the Bank's governor, Fisher has been pressing for an additional £25bn of quantitative easing – electronic money creation – to boost growth.
"If QE has contributed to inflation still being somewhat over-target at around 2.5% now, that seems to me a much better outcome than the alternative of a deeper recession and a greater risk of deflation," he said.
guardian.co.uk
Speaking in Cardiff on Friday, Paul Fisher said there had been nothing to compare with the recent sluggish performance of the economy since modern quarterly growth data was first produced in 1955.
"It is as if the different groups within our society – households, businesses, banks and the government – have all decided that their future financial positions, on average, will be worse than they thought before the crisis", said Threadneedle Street's director for markets.
Fisher added that the willingness of people to accept cuts in their living standards was explained by their downbeat view of the future.
"One possible household reaction to lower expected incomes is for people to try and work harder, and certainly to avoid unemployment if at all possible. This means being willing to stay in (or find) work even though the benefits from that – real wages – are being squeezed.
"The acquiescence of the UK labour force in accepting lower real wages is quite remarkable for those of us who grew up during the wage-price spirals of the 1970s and 80s.
It explains in part why unemployment has stayed much lower than we would have expected, given the weakness of output growth. Much of the labour force has priced itself into work."
As one of the three members of the Bank's monetary policy committee pressing for additional stimulus, Fisher said growth was likely to remain below trend until there had been further adjustments to the post-crisis environment.
"That includes households, the public sector, banks and other businesses. In my view we are maybe two-thirds to three-quarters of the way through in each case, varying both across and within sectors."
He added that the historical norm was for the economy to expand by 0.6% a quarter but that had happened only five times in the 21 quarters since national output peaked at the start of 2008.
"Even compared with previous examples of financial crisis – whether at home or abroad – the UK economy has been puzzlingly weak for a long time."
Fisher said banks had been trying to repair their balance sheets by restructuring, reducing borrowing in the wholesale money markets, improving their liquidity and building up capital buffers.
"I believe every large UK lender has at least one non-core portfolio they are running down, and commercial property lending is typically a common factor."
Together with David Miles and Sir Mervyn King, the Bank's governor, Fisher has been pressing for an additional £25bn of quantitative easing – electronic money creation – to boost growth.
"If QE has contributed to inflation still being somewhat over-target at around 2.5% now, that seems to me a much better outcome than the alternative of a deeper recession and a greater risk of deflation," he said.
guardian.co.uk
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