Given that the UK’s savings rate is already near a fifty-year low, it’s unsurprising that markets are taking his advice with a pinch of salt. And it’s perhaps not a coincidence that Bean’s pronouncement was followed a day later by a move in the gold price to a new high above US$1300, while sterling has lurched downwards against the euro again over recent weeks.
After all, if your central bank’s leadership is spelling it out for you that they intend to devalue the currency and to penalise savers with sub-inflation interest rates, it’s probably best to take them at their word.
But can Bean succeed? A chart of the UK savings ratio over the last 25 years suggests that there’s not much room for further overspending. And while worldwide interest rate cuts and quantitative easing policies have had some success in boosting asset (stock market and real estate) prices, we’re still well below the peak in net financial wealth recorded a decade ago. Furthermore, real estate prices show signs of weakening again, while the UK (and US) stock markets haven’t made much headway from levels recorded a year ago.
Nor, as the FT reported late last week, are equity market trading volumes suggesting that a real rebound is at hand. September has so far shown a highly unusual drop in US equity turnover from August, a holiday month, while this August was itself the quietest in three years.
So while an unholy alliance of politicians, bankers and economists is telling the average citizen to get back to the spending and borrowing habits that landed us in the credit crisis in the first place, there’s little evidence that people are willing to listen.
Mr. Bean has a tough battle on his hands.