Bean, the Bank’s deputy governor, is trying to discourage people from building up cash savings, which generate little income because the interest rates are currently so low. Instead he wants businesses and families to spend big and keep that money flowing.
Now you’d be forgiven for being surprised at being told to ‘spend spend spend’. It’s hardly the kind of instruction we’re used to hearing these days. And given the nation’s current cloud of economic uncertainty, the Bank’s deputy governor may be met with the kind of bemusement typically reserved for his hapless comedy namesake when he gets his head stuck up a turkey.
Bean has admitted that the base interest rate was being held down in the hope families would be out flashing the cash, and helping to get the stuttering economy back on its feet.
Bankers aren’t usually this candid, and Bean may soon learn why: especially if he encounters the wrath of the nation’s savers. This prudent bunch has already suffered greatly during the recession, and may feel the Bank’s policy is punishing them for being sensible. Official stats put savers’ losses at £18bn in reduced interest. Bean says they ‘shouldn’t expect’ to live off their savings. Hmm. Surely that’s better than living off the state?
But it’s not just the nation’s savers who may be out to bake Bean. Others are miffed that, having already been asked to bail out the banks, prepare for £6bn of spending cuts, and stomach a rise in VAT, they’re now being urged to put their own economic security on hold for the sake of the greater economic good. Surely us Brits aren’t that altruistic?
The Bank does, of course, have its reasons. Bean points out that the interest rate policy was designed to get the economy fighting fit again as quickly as possible. ‘The faster we can achieve that, the sooner interest rates will get back to more normal levels,’ he said. Had the Bank not acted, he added, unemployment would have been higher, and wage growth lower.
He’s right in that something’s got to give. But it may not be enough to appease a nation that’s tiring of mixed messages. For a long time now questions have been asked about a generation of profligates who lack any kind of bent towards rainy-day savings. And only yesterday the IMF came out in support of the government’s upcoming austerity drive, calling it ‘appropriately ambitious’. Now, even as the nation is reluctantly crafting another hole in an already tightened belt, Bean has us dishing out the folding stuff.
It may all spell good news for Ed Miliband. Not only is he able to distance himself from the previous Labour leadership by slamming their boasts about ending boom and bust, he can point to the powers that be who don’t seem able to work out whether we should be reaching for the credit card or the deposit book.
Now, who’s for a bottle of Clos du Mesnil? When was the last time you could justify that?