My BBC World/News 24 items today

I was on BBC World this morning to discuss the latest UK GDP figures and why the UK is the last major economy still in recession (hoping to get a clip to upload later). Here is a summary of my views, some of which I got across in the interview. Any of these could be an article in themselves, but there isn't much time to discuss them on an hourly business news update!

  1. Our recession has been worse mainly because we are dependent on the financial sector. We did very well out of this before the recession, but having reached a higher peak we had further to fall.
  2. However, employment figures have been relatively very healthy, meaning that the pain of the recession has been less than it could have been. Also, fiscal and monetary action have mitigated the risk of a deeper depression.
  3. We are now gradually edging out of recession but there is a risk that tax rises and government spending cuts will put a brake on growth. To combat this, continued aggressive monetary policy is needed. Because interest rates are about as low as they can go, three things are needed:


    • more quantitative easing
    • more work on transmission within the finance sector, to get the extra money to actually take effect in the economy
    • clear expectation setting, the one thing Scott Sumner and Paul Krugman agree on


  4. Fiscal policy has a short-term impact, monetary policy medium-term, and real investment and consumption choices finally take over in the long term
  5. The unusually high household savings rate of recent months could slow growth as well, unless it finds its way into investment. That's the big economic question in the longer term.
  6. Therefore the key question is: can government or central bank policy help to create more investment? It can invest directly itself, in education or infrastructure, but the key policy goal has to be to remove barriers to productive investment as far as possible.
Update: BBC News 24 also interviewed me about this and I made sure to emphasise how crucial it is that the Bank of England set clear expectations about the strength of their future monetary policy. Price level targeting or NGDP level targeting (as opposed to targeting of growth rates) are an important part of this - see the Scott Sumner link above for more detailed thoughts on this.

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