Bank of England committee member Martin Weale has hailed a new “underlying sense of confidence” in the UK – and predicted an end to the lengthy squeeze on household incomes.
Mr Weale, a member of the Bank’s Monetary Policy Committee, said he was hopeful of a revival in the economy, but warned that the eurozone crisis could yet scupper a recovery.
And he told the Post that a rise in the state pension age to beyond 70 was likely by the middle of the century to plug a growing savings gap.
Mr Weale, in Birmingham for a regional visit to gauge the mood among local businesses, said: “I would say that the general mood is that there is an underlying sense of confidence. The economy is stagnating but I have not heard people say ‘this is a disaster.’
“For quite a long period now, we have had slight upward movement, and slight downward movement. Rather than describe it as a double-dip recession, I would describe it as a sustained period of stagnation.
“Not only are we not making any progress, but we are not growing at all. My hope is that there will be a gradual revival.
“I think that the squeeze on household spending through rising fuel and petrol prices is coming to an end. The big uncertainty is how the situation in the eurozone develops.
“It is perfectly plausible that we get a shock; the eurozone is the biggest source of uncertainty. People are saying ‘let’s put off making a decision about investing.’
“But this is not unique – if you think back to the 1970s, where oil prices went up sharply, we had a three-day week and there was 25 per cent inflation. The economic problems are different from those of the 1970s – we have different problems now but the idea that we had no severe economic problems in the past is quite wrong.”
Mr Weale, who was Director of the National Institute of Economic and Social Research for 15 years, predicted that the state pension age would rise to over 70 by the middle of the century.
“There are factors here like very low annuity rates. People are living longer, some returns are going to be lower. If people want to spend money when they are young, they have less to spend when they are older.
“The way I can see it being resolved is by raising the retirement age (state pension age). If you have a pension pot which is not terribly big, you can work for longer and delay your retirement.
“More than increasing savings, the route we are going down seems to be delaying retirement. We are talking here about problems that lie 40, 50 years ahead in the future.
“My memory of the Budget is that the state pension age is expected to rise in line with life expectancy. If life expectancy goes on rising, the state pension age goes on rising in line with that. If life expectancy goes on rising, the state pension age will drive up beyond 70.”
Mr Weale said the Bank of England’s recently introduced Funding for Lending scheme aimed to boost loan availability. “I hope that will make things easier for business and will create the mechanism for banks to lend. It is also true that banks are saying that people they are looking to lend to do not want to borrow.”
Mr Weale forecast the eventual return of “more normal economic conditions”. He added: “I think in the longer term we need to get into a situation where people feel more comfortable about the level of debt they have.
“I think that people have discovered that debt is not an automatic way to higher profits.
“But the elephant in the room is the eurozone and that could have very unpleasant consequences and I think that everybody recognises that.”