Britain's soggy future?

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I have interviewed the Bank of England's chief economist Andy Haldane about how seriously he takes the risk of what Larry Summers, the former US Treasury Secretary, calls "secular stagnation".

This is the dour prospect that in the mature rich economies growth in the future will be much slower than it was in the decades before the crash (even though right now the UK is growing at an annual rate of 3% - which is similar to pre-crash levels).

Haldane made clear that this danger is very much on his radar. Here is what he told me.

Robert Peston: How big a risk is there that we are entering a prolonged period of low growth?

Andy Haldane: For the foreseeable future, those headwinds to growth will be with us. They'll be holding us back to a degree. Why is that? Because we are still paying for some of the cost of the [2008 financial and economic] crisis - debt levels still a bit too high, both out there among companies and households, but also among governments increasingly. And also because I think people are still scarred by the crisis, their appetite for taking risk has been diminished, possibly on a more durable basis. And both of those things near term will tend to drag growth back a bit.

RP: Are there other factors, common perhaps to a lot of Western countries, that hold back growth?

AH: There is definitely some risk of that. We are all living longer, and therefore perhaps need to save larger amounts to cushion us over retirement. There is at least a possibility in some people's minds that we might be less good at innovation, in the future than we have been in the past. And then there is inequality - is that providing a longer term headwind?

All those are factors people have discussed. They should not be discounted. As central banks there is not very much we can do about them, as it turns out. Except if they did turn out to be important, we'd be setting rates lower for longer, I think, than would have been the case pre-crisis.

RP: If you look at what bond markets are saying about growth prospects in the UK, based on the prices of UK government bonds, that looks pretty dour, pretty pessimistic. Are they right to be so pessimistic?

AH: It's a remarkable pattern. So, if you adjust for inflation those yields, those rates of interest on government securities, as you say, here in the UK, are not just negative, but negative as far as the eye can see.

One interpretation is just that people are scared. People are scarred by the risk of something else going wrong, and are seeking safety, safety almost at any price. The other is that this is telling us something about future growth prospects. It may be telling us that rates in future may be materially lower than they have been in the past, because growth is soggier than it has been in the past.

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