Bank governor tells New York: recovery outlook is optimistic
Bank of England governor, Mark Carney, has insisted the UK's poor trading performance and household debt mountain are no reason to panic, as he challenged "pessimists" who believe the recovery could falter.
At a speech in New York, Mr Carney instead set out "reasons for optimism" as he sought to quell the fears of some experts that, following the financial crisis, advanced economies would now be stuck in a cycle of low growth.
He acknowledged the risks of "unbalanced growth" in Britain with household debt levels at 140% of incomes, a surging housing market and a near-record trade deficit.
But he said: "These developments merit vigilance, not panic."
"For the first time in a long time it seems reasonable to expect the hopes and dreams of the holiday season to be fulfilled."
He said news from the UK – which he characterised as a "small open economy" – was positive, with inflation down to 2.2%, jobs being created at 60,000 a month and growth "for the moment" the strongest in the advanced world.
Giving reasons for optimism, the governor said recovery was being driven by a reduction in "extreme uncertainty" as well as progress in repairing the financial system and an improvement in household balance sheets.
Despite the high levels still owed, debt to income ratios had fallen by about 30%.
Mr Carney acknowledged that 850,000 more people were out of work than in the years before the crisis and the economy was around 20% smaller than the size it would have been if pre-crash growth had continued.
But he took positives from the housing market revival, saying it could reflect higher future income expectations created by the recovery, and better credit conditions, while also playing down concerns about the trade deficit.
"Although the current account position underscores the need for the recovery to shift over time towards investment and export growth, it would be unreasonable to expect that to have happened already.
"Recoveries are seldom led by investment and strong demand from the UK's major trading partners, including the eurozone, appears some way off."
Mr Carney added that as the economy recovered, investment should pick up and part-time workers shift into more productive work, helping generate greater capacity and real wage growth.
He said there had been a long history of pessimism in economics, adding: "Such worries have prove misplaced in the past and scepticism is warranted now."