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Q&A: Andrew Sentance

Q&A: Andrew Sentance

The UK has been doing relatively well in what I call the new normal for economic growth – it was the leading G7 economy last year. We shouldn’t expect to go back to the sort of growth rates we had before the financial crisis.

The fundamentals in the UK economy look reasonably sound. We have a government that is pursuing economic policies that will encourage business and support economic stability so I am relatively optimistic.

Recession has still left its mark. Unemployment has come down but real wages have taken quite a squeeze. People who relied on interest income; have to cope with much lower levels of income.

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We have made a lot of progress in the last five or six years and will actually move into the seventh year of economic recovery in the second half of this year. This is not widely recognised, that this is a recovery that is now going on for sometime some of the memories and traumas of the financial crisis will fade and that will help with consumer and business confidence.

Deflation is really a problem when the prices are falling sharply and the money values of things in the economy fall sharply at the same time, like the money GDP, asset prices, wages etc. We have moved away from that and what we are seeing now - if you want to call it deflation - is quite benign.

You got a government now that has an ambitious agenda in terms of trying to improve the economy of the UK. They are trying to invest in infrastructure, they want to create more apprenticeships, improve the skills base.

When I started my career at the CBI in the mid-1980s we were talking about the need to improve infrastructure and skills. Getting beyond the talking about it and actually delivering it is the big challenge.

It will be encouraging to see George Osborne talk about ambitious programmes of tax reform. Some areas of the tax system are over complicated and contain many anomalies that have not been addressed for many decades.

He has taken low earners out of income tax but they and their employers still pay an awful lot of national insurance still pay a lot of national insurance. That’s one issue he could address.

The EU is a very important part of our economic progress and the way our economy functions for over 40 years now. There is a danger we take it for granted and we don’t recognise the reason the many companies invest here is that we are fully part of the EU.

The problem we have is a low level of interest rate in the UK which was designed to get the economy out of recession. Now that is happening we need to gradually readjust the level of interest rate back up to a higher level and do it in a way that doesn’t create a big shock for the economy.