UK facing 'Sober' decade, warns Bank of England Governor Mervyn King Photo: REUTERS
Alluding to the "Non-Inflationary Consistently Expansionary" [NICE] decade just passed and coining a new acronym to describe the years ahead, he warned: "The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while. So the next decade is likely to be a 'SOBER' decade – a decade of savings, orderly budgets, and equitable rebalancing... A sober decade may not be fun but it is necessary for our economic health."
The Governor's call for a transformation in the national character comes as the Chancellor on Wednesday outlines the sharpest spending cuts since at least the Second World War. He will unveil detailed plans to cut spending by £83bn to address the £935bn national debt and £109bn structural deficit – the annual overspend left once the economy has fully recovered.
Like the previous government, households overextended themselves in the past. Mr King said: "The counterpart to strong consumption was low saving. Having averaged close to 20pc in the 1960s and 1970s, gross national savings fell to just 12pc of income in 2009 – the lowest since the War. This was all the more remarkable because one might have expected saving to increase as life expectancy rose. In the coming years, we will have to save more."
A higher savings rate and a more prudent fiscal policy will be part of a vital "rebalancing" of the UK economy, Mr King said, as "we need to sell more to, and buy less from, economies overseas". "Such an adjustment is unlikely to be smooth," he added. "The path for the economy will be bumpy."
Greater prudence in Britain would be the UK's contribution to a "grand bargain" that countries worldwide must strike to see off the threat of protectionism and avoid a "disastrous collapse" in global economic growth, Mr King said.
In a speech to the Black Country Chamber of Commerce, Mr King called on nations to set aside self-interest and draw up a plan for common economic reform. Deficit countries, like the UK, need to save more while surplus countries, like China, need to "shift away from reliance on exports".
"All countries accept that global rebalancing is necessary," he said. "But there is ... a disagreement on the appropriate time path of real adjustment." Surplus countries need to move slowly so as not to destabilise growth while deficit countries "are under near-term pressure to reduce the burden of debt", Mr King said.
In an oblique reference to political pressures in the US, he added: "The need to act in the collective interest has yet to be recognised ... unless it is, it will be only a matter of time before one or more countries resort to trade protectionism. That could lead to a disastrous collapse in activity around the world. Every country would suffer ruinous consequences – including our own."
http://www.telegraph.co.uk/finance/economics/8074535/UK-facing-Sober-decade-warns-Bank-of-England-Governor-Mervyn-King.html
