Is the UK's recovery too robust?

Mark Carney Will Mark Carney have to raise rates to head off inflation?

With living standards still squeezed and the value of what we produce in Britain not yet back to where it was in early 2008, most would say that any recovery will do.

Surely, therefore, it's great news that the Bank of England has described the UK economy as growing robustly.

Such has been the mind-befuddling density of the gloom that enveloped us after the Crash, it is quite difficult to remember when the Bank of England sounded so positive.

If nothing more (and there has been more), the arrival of Mark Carney at the Bank of England has sparked a cultural revolution: today's Inflation Report from the Bank read less like the traditional plan to fend off any incipient inflationary threat and more like a manifesto for economic expansion.

But, at the risk of sounding like a curmudgeon, is there a danger that the growth - at 3% or so for the next three years - is too robust?

Because growth that prompted a sharp rise in inflation would (surely) force the Bank of England to raise interest rates sharply.

And that would be a miserable prospect for millions of people with big mortgages and other debts.

To remind you, since the Crash, the indebtedness of British people has come down as a percentage of income, from a record 163% in 2007-08 to 140%.

But that is still high by historical standards - and the absolute value of those debts is a record, at more than £1.5 trillion.

What's more, the debts are not distributed evenly; there are millions with disproportionately larger debts.

So if interest rates rose by only two or three percentage points, too many would struggle to maintain their payments.

How great is the risk of an inflation-induced, economy-crippling rise in interest rates over the next couple of years?

The Bank of England calculates the risk as low: its conviction is that there is plenty of slack in the economy, and that therefore there won't be a self-reinforcing cycle of rising prices and wages as we all buy more or invest more.

But this assumes the productivity or efficiency of workers will improve significantly, that the extra demand for stuff (goods and services) can be met by all of us producing more for the same money.

Which may turn out to be what happens.

But the Bank's confidence in this assumption - to coin its own phrase - does not seem especially robust (a new era, Carney-esque leap of faith, perhaps).

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • Comment number 394.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 393.

    Robust recovery? Are these people living in the same world as the rest of us? As for the idea that low interest rates are fuelling inflation, this is ridiculous. Prices are going up because of world-wide pressure on food and fuel prices. This is not being driven by borrowing at all. The typical manufactured goods that in the past were inflated by borrowing have never been cheaper.

  • rate this

    Comment number 392.

    Record numbers of unpaid enforced slave workers, and record numbers of Housing Benefit claims, plus half a Million facing homelessness. Is this a "Recovery"?

  • rate this

    Comment number 391.

    389. ComradeOgilvy "Rising inequality?"

    It's a distinct possibility. The annual UK Giving Survey is due this month, so it will be interesting to see whether the recent falling trend is stabilised or reversed. We should not be too surprised if it is not, since interviews would have been completed in the spring, before many believed in a recovery, let alone benefiting (still too early for that).

  • rate this

    Comment number 390.

    I wonder why people are still talking about beck to where we where before the crush, knowing the crush was inevitable, even so knowing the Q easing has to be payed beck, how you get grow when your debt is still growing by the day? China middle glass and some of other countries like Brazil are growing fast, so someone has to comedown fast, it;s sample as that, they produce and sell things .

  • rate this

    Comment number 389.


    I suspect charitable donations are more often treated as discretionary than you give credit for, or at least that the tax implications are not at the forefront of everyone's thoughts so the effect is diminished.

    On that (dubious) basis, I find it concerning that rises in large donations have not compensated for the decline in donations by those with reduced means. Rising inequality?

  • rate this

    Comment number 388.

    @387 ComradeOgilvy "You can probably guess my interpretation. What's yours?"

    I don't really have one. I would have expected donations to April 2013 to have fallen, given that notice of the cut in the 50% rate of income tax reduced an incentive for avoidance. Perhaps it's deferring company profits by boosting large donations ahead of pre-announced Corporation Tax cuts?

  • rate this

    Comment number 387.


    Thanks. You can probably guess my interpretation. What's yours?

  • rate this

    Comment number 386.

    @384 Geoff Howard "This is not a balanced recovery, where most get some form of benefit from it"

    Neither you nor anyone else yet knows who is benefiting from the early stages of recovery. Not all those who now have jobs will have higher incomes; not all those who are working longer will be paid more; few will yet have received "typical" 3% pay increases that surveyed employers are planning.

  • rate this

    Comment number 385.

    @383 ComradeOgilvy
    Different report and therefore a different period:

    "The estimated total amount donated to charity by adults in 2011/12 was £9.3 billion, a decrease from 2010/11 of £1.7 billion in cash terms and of £2.3 billion in real terms, after adjusting for inflation."

  • rate this

    Comment number 384.

    I, and millions like me have no GDP, what we see is more month at the end of the pension. If you like, our GDP is the higher costs of what is necessary to keep us alive. This is not a balanced recovery, where most get some form of benefit from it, I don't know what planet Carney lives on, but it bears no resemblance to mine.

  • rate this

    Comment number 383.


    Donations to charity? And the overall figures?

  • rate this

    Comment number 382.

    "The total value of donations worth £1m or more in the UK has increased by 9% to £1.35bn in 2012 according to research by Coutts.

    The 6th annual Coutts Million Pound Donors Report, in association with the University of Kent, found UK philanthropy is buoyant with the highest level of £1m plus donations in the UK since the financial crisis, rising 9% from 2011 to 2012."

  • rate this

    Comment number 381.

    beware @377
    'employment the key

    FULL employment of the able, with FULL reward

    And for those too young, too sick, too frail, FULL belonging, with FULL benefit

    Sharing FULL (equal) access to whatever might be our 'social produce', AND sharing Grounder's intangibles @379, gladness to know all well, to help, to go extra miles, AND sharing equally in the market direction of our world, in conscience

  • rate this

    Comment number 380.

    What recovery?

  • rate this

    Comment number 379.

    @376. All for All "our reliance on GDP might be to an extent justified"

    GDP(O) is a tolerably agnostic yardstick of brutish value add, allowing that it excludes all value provided free (which I, for one, would never wish to overlook, even when there is a mercenary ulterior motive). Do we not treasure "quality" above mere product, seizing it when it is free and paying for it if we must and can?

  • rate this

    Comment number 378.

    Got to love the BBC - no growth or low growth bad, normal growth bad and high growth bad Funny how when it is someone else (germany) who has growth figures like these it is used as a comparison of how badly we have been doing but not when it is the other way around doom and gloom for us not them.

  • rate this

    Comment number 377.

    Growth is always a bit tricky to value. You can spend more tomorrow and it looks like growth has increased, but that could simply be down to a pay rise and cost of living increase. You are actually still spending roughly the same on the same things. Prices will go up and down, inflation is still an indicator, it's not an absolute figure. For me Employment is the key.

  • rate this

    Comment number 376.

    Grounder @372
    "we hope..."
    the productivity or efficiency of workers
    will improve significantly?

    Also, against better judgement, that our reliance on GDP might be to an extent justified, beyond 'league table placing' a measure of our humanly meaningful "productivity or efficiency"?

    Do we not KNOW, however, that only what we do in free conscience is our best? In fear & greed, cumulative folly?

  • rate this

    Comment number 375.

    You talk as though higher interest rates would be a bad thing. Low interest rates are the reason for years of stagnation, with savings earning a pittance and pensions destroyed.


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