Ben Bernanke, the US Federal Reserve (Fed) chairman, and Spencer Dale, Executive Director and Chief Economist of the Bank of England, have both given the markets food for thought.
Ban Bernanke, giving his half yearly assessment of the economy to the US Congress, said that the recovery was continuing at a ‘moderate pace’ and that GDP was expected to grow at about 3% this year.
But what got investors sitting up and taking notice was his comments that the US economy still faced an “unusually uncertain” future and that the central bank was ready to take further steps to bolster the recovery if needed. He laid blame at the door of the banks, unemployment and Greece for delaying the US recovery.
On this side of the Atlantic Spencer Dale in an interview with the Independent warned that the UK economy was facing a triple whammy of higher inflation, rising unemployment and lower growth. This would lead to only a minimal rise in the standard of living he said.
Despite the boost to sovereign debt rating that the budget had provided, he painted a bleak picture of inflation running above the 2% target until at least the end of 2011, unemployment rising over the next few months and several years of dampened economic demand.
The upshot he said was that the economy would not return to normality “for an awfully long time”.
This further backs up the view that many have had that we are now in for a long and economically stagnant future ‘Japanese style’ as debt is balanced with muted recovery. The trouble is that while that balance is maintained nothing changes, we just struggle on. But to effect a real change would probably require the taking of truly unpalatable political decisions.