Uncertainty ‘holding back the recovery’

The Deputy Governor for Monetary Policy at the Bank of England explained that demand is often weak in the aftermath of a financial crisis. “That reflects the sharp and sustained impact on household and business confidence that often occurs, and also the need for high rates of saving to repair balance sheets,” he said.

But he warned that in the current economic recovery several other factors have depressed demand.

“Spending has been depressed by uncertainty emanating from the euro area. Real income growth has been held back by the sharp rise in commodity prices. And it is inevitably taking time for the economy to restructure and for resources to transfer to the tradable sector from the domestically-facing sector.”

Speaking at the JSG Wilson Lecture in Economics at the University of Hull last night, Mr Bean also spoke of the factors he believes contributed to the financial crisis, stating households, businesses and especially financial institutions underestimated the risks they were exposed to.

This was exacerbated by “pay packages that encouraged high-risk trading strategies; and informational deficiencies stemming from the underlying complexity of new financial instruments”, he said.