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Bean's call for savers to start spending raises a stink

Calls by the Bank of England deputy governor, Charlie Bean, for consumers to start spending have not gone down well.

Bean's call for savers to start spending raises a stink

The Bank of England’s deputy governor Charlie Bean caused a storm by telling savers to get out and spend after the second-quarter national accounts and balance of payments painted a mixed picture.

His argument that savers profited when interest rates were high so they should hit the high street to help propel the economy forward was met with a wave of protest.

Former policy adviser to Number 10 Ros Altmann branded Bean’s admission that hitting savers in the pocket was a key aim of its monetary policy, rather than a side effect, ‘short-sighted’ and warned it risks undermining pensions.

Howard Wheeldon, senior strategist at BGC Partners, said the Bank should also be careful about what it wishes for as any rash of consumer spending would bring its own economic problems.

‘Should savers be stupid enough to take Bean’s remarks literally – meaning that they start to spend some of their hard-earned savings – we could well see inflation being pushed up,’ he said. ‘In fact, UK inflation is already high and still well above the government’s 2% target, but the point that higher inflation would devalue government debt, allowing the underlying economy to maybe improve at a faster rate, is not lost.’

‘Sadly there are many flaws in the argument that a dollop of inflation is good for you. For a start, high inflation would make the UK less competitive and we should not lose sight that if inflation remained well above target the Bank of England would have little choice but to raise interest rates as an automatic response.’

That said, this week’s news that the UK’s balance of payments narrowed more sharply than expected in the second quarter provided some positivity amid the gloom as the current deficit fell to £7.4 billion from the upwardly revised £11.3 billion in the first quarter.

However, Jonathan Loynes, chief European economist at Capital Economics, warned: ‘There are still good reasons to be concerned over the sustainability of the recovery.’

On the positive side, the revisions to the expenditure breakdown of GDP indicated that the recovery has been more broad-based than previously thought as the contribution of inventory building was revised down notably from 1% to 0.4%. The change in investment was pushed up sharply from a quarterly drop of 2.4% to a 1.2% gain.

‘But there were less encouraging aspects to the data too,’ Loynes said. ‘The narrowing in the current account deficit was driven entirely by a strong rebound in investment income after a sharp fall in Q1. We already knew that the trade in goods and services deficit widened sharply in Q2, denting hopes of a major rebalancing in the economy towards the external sector.’

Added to this, household disposable income dropped by 1.6% in the second quarter, indicating that the 0.7% rise in spending was paid for out of savings and indeed the saving ratio dropped from 5.5% to 3.2%, the lowest level for 18 months.

‘That might please Bank of England deputy governor Charlie Bean, [but] the saving ratio has now reversed roughly half of the increase seen in 2008 and early 2009,’ Loynes said. ‘While the stronger growth of investment is of some comfort, the pressures facing households – even before the fiscal tightening has arrived – continue to cast a long shadow over the outlook for the economy over the coming quarters.’

12 comments so far. Why not have your say?


Oct 03, 2010 at 11:36

It's patently obvious that Carlie Bean is an idiot. How come that we the taxpayers are required to pay his salary as well as seeing our savings devalue by the minute!

Where do we get such incompetents to fill senior posts, who appoints them and how quickly can they be dismissed?

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Anthony Palmer

Oct 03, 2010 at 12:28

Silly old fool. Who is going to pay for our nursing care etc, etc., our children?

You have to be joking. We have saved so that we can always be independent of the State and never a burden. All very well to make such foolish statements when you are on a colossal salary with colossal index linked pension. These people are not in the real world. How in heavens name did he get the job?

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Jeff of Sidcup

Oct 03, 2010 at 13:05

The aptly named Mr Bean probably got his present job via the "Buggin's Turn" system with which the entire public sector is riddled. In normal commercial enterprises the ascent up the ladder from junior whatever is a highly competitive process which finds, and disposes of, the Beans of this world before they can do any damage. Our public services know nothing of this.

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William Bishop

Oct 03, 2010 at 13:31

There is of course a dilemma. In the longer run, the UK economy would be better balanced if the saving rate was to be higher, but making this adjustment too quickly would throw the economy back into recession. (The same argument also applies to the US and other "anglo saxon" economies). Mr Bean's comments reflected the Bank of England being for the present more concerned by lack of demand than by inflationary concerns, but were perhaps unwise in terms of creating political flak.

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Robin McEvoy

Oct 03, 2010 at 15:18

Mr Bean, you are a civil servant and as such you should not be making public utterances anyway. It's a good rule, designed to protect you and us from the sort of idiocy you have displayed. The biggest insult is that we taxpayers pay you an enormous amount; this is exactly the sort of government waste that should be culled. You are a total waste of rations - go away and play golf or tend your garden. Those of us that have the sense to save will save the nation for you.

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Oct 03, 2010 at 15:52

Of course people aren't going to spend. They need to save even mopre now that the banks are paying almost nothing in interest, and are activley discouraged from spending by Cradit Card rates being at their highest level for nearly ten years, while the banks borrowing is the lowest its ever been for most of them. (not many can go back 300 years)

It is the banks themselves that are stifling everything except their own bloated bonuses as Mr Bean (any relation??) must surely know.

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Anonymous 1 needed this 'off the record'

Oct 03, 2010 at 19:24

Further details on the issue can be seen under Citywire

"Savers ignore Charlie Bean and use earnings to pay off debt."

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Oct 03, 2010 at 19:33

Anthony Palmer I agree with everything you say.

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Anonymous 1 needed this 'off the record'

Oct 03, 2010 at 21:14

In the same way as the state cannot run a deficit forever, we cannot expect the economy to be propped up by savers forever.

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Anonymous 2 needed this 'off the record'

Oct 03, 2010 at 23:05

This insensitive fool should be forced to resign.

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Keith Snell

Oct 04, 2010 at 10:06

Anon 2 is correct but why hide behind anonymity when stating the obviose, if Bean was worth his salt forcing resignation would not be necessary he would have one so by now .

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Rob Morrison

Oct 06, 2010 at 21:28

Unfortnately, I suspect that Mr Bean, despite the feedback to his comment, will retain his original views that savers should become spenders. Savers will never become spenders & spenders are unlikely to change, also.

Society needs to come together and start to share and compare as opposed to being polar and secular in it's opinions.

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