The governor of the Bank of England said growing pessimism on the UK’s “liquidity trap”, and its potential to trigger a deflationary spiral, was so far unfounded. He also dismissed fears that productivity and wage prospects had been permanently tarnished by the recession.
Speaking at the Economic Club of New York on Monday, Mr Carney said: “In Britain the employment rate has fallen only a third as much as in the US. The flip side of that strength has been exceptionally weak productivity growth. Will UK productivity growth pick up alongside demand? The fundamentals are promising.”
He said that given the flexibility of its labour market, the continued openness of the economy and the credibility of macro policy, it was “hard to think of any reason why there should have been a persistent deterioration in the rate of potential growth in Britain”.
Mr Carney added that a recovery in the economy would also boost investment and prompt part-time workers to move into more productive full-time work, paving the way for “real wage growth” in the process.
Adviser comment
Andrew Dawkins, director of Falkirk-based ARD Consulting, said: “The UK smaller companies sector has been a booming sector in recent years and often overlooked by investors in favour of the Brazil, Russia, India and China economies, so that indicates the outlook is rosier than often suggested.”
