THERE is “reason for some optimism” for the British economy over the coming period, the deputy governor of the Bank of England said.
The economy has been “bumping along the bottom” for two years but there are now signs of progress in dealing with problems in the eurozone and the banking system and expectations of lower inflation, Charlie Bean said.
His comments came after the UK emerged from double-dip recession on Thursday, with figures showing that the economy grew by 1% in the third quarter, after nine months of negative growth.
Chief Secretary to the Treasury Danny Alexander accepted that the past two years have been more difficult economically than the Government expected when it put in place its deficit reduction programme in 2010.
But he rejected suggestions that austerity is to blame for sluggish growth and said that he would still have backed cuts on the same scale, even if he knew at the time of the 2010 comprehensive spending review that growth over the subsequent two-and-a-half years would be just 0.6%, rather than the 6% that was forecast at the time.
The Liberal Democrat Cabinet minister told BBC1’s Sunday Politics that the impact of the eurozone crisis and commodity price rises means that “growth has been much slower than we would have liked over the last two to three years”.
He said: “Things have been more difficult than we expected. We know when we came into office that they were going to be difficult but I don’t think that means the path we chose was wrong.
“I am saying that if we hadn’t gone for the austerity programme that we did – the deficit reduction, the spending reductions – then our economy would have been in a much worse position.
“Of course when you make decisions that are about reducing people’s benefits, having to put up VAT, all of these things have an effect on the economy. But I think the net effect of having chosen a path of credibility and building confidence in Britain’s ability to pay its way is the right answer for the economy.”
Mr Bean cautioned against an over-optimistic response to last week’s GDP figures, pointing out that a proportion of the growth was caused by one-off factors like the Olympics.
But he said households can expect to see less of a squeeze on their incomes in the coming months.
Speaking to Sky News’ Murnaghan show, the bank’s deputy governor said: “Some of the headwinds we have been struggling against in the past couple of years will be abating somewhat.
“Most particularly, we have seen a big squeeze on households’ real spending power. Going forward, that squeeze should not be so intense.”
