Bad advice from the Bank of England
The Bank of England deputy governor Charles Bean has made a statement encouraging people to stop saving, start spending and rescue the British economy.
In a statement made yesterday, he was discouraging people from saving their cash in return for historically low interest rates.
Instead, he thinks we should all be out spending our cash to give the economy a further boost.
This is terrible advice from the Bank of England.
Low interest rates result in two things; lower mortgage costs and less of an incentive to save money.
That people are using this as an opportunity to repay expensive debts and build their cash deposits is not much of a surprise. With so much uncertainty remaining about the future of our economic recovery, those in debt should keep repaying debt and those who are saving should keep saving.
The country is about to face a round of public spending cuts that are likely to result in job losses.
These could also mean indirect job losses, in the private sector where contracts are cancelled. In fact, we have already seen several examples of businesses facing difficulty because they relied on public sector customers who are no longer spending.
The admission from the Bank that interest rates are being held low to discourage saving, combined with the rather candid request for savers to spend more, both suggest that rates will remain at this historically low levels for the foreseeable future.
With the official figures for UK economic growth in the second quarter of 2010 showing it remains unchanged at 1.2%, the fastest rate of quarterly growth in nine years, it feels unlikely that the British economy is in such dire need of the money savers are squirrelling away, just yet anyway.
Photo courtesy of TheeErin.