Loss of income caused by banks as bad as a 'world war', says BoE's Andrew Haldane

Bank should have done more to deflate the bubble ahead of recession

By Philip Aldrick

Andy Haldane, the Bank’s executive director for financial stability, added that public anger at the banks was fully justified and that pay in the industry remained too high.

“In terms of the loss of incomes and outputs, this is as bad as a world war,” he said. “It would be astonishing if people weren’t asking big questions about where finance has gone wrong.

“If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren. There is every reason why the general public ought to be deeply upset by what has happened – and angry.”

Four years since the crisis struck, the economy is still 3pc smaller than at its peak. The scale of the problems will be exposed again on Wednesday when the Chancellor updates the country on the economic outlook and his austerity plans.

To boost “growth, job creation, exports, investment, and business confidence”, George Osborne needs to be “bold” in his mini-Budget, the British Chambers of Commerce said as it downgraded its growth forecasts for next year and 2014.

The business group cut its 2013 forecast from 1.2pc to 1pc and from 2.2pc to 1.8pc in 2014, blaming the deteriorating global economy and the prospect of more austerity as the Chancellor responds to the worsening public finances. However, it raised its forecast for this year from a contraction of 0.4pc to a contraction of just 0.1pc.

Manufacturers offered Mr Osborne some respite ahead of Wednesday, though, after factory output in November turned out to be better than expected. Activity contracted in the month, but it was the smallest decline since August and less than had been predicted.

According to the Markit/CIPS Purchasing Managers’ Index, manufacturing activity jumped to 49.1 in November from October’s downwardly revised 47.3, beating the consensus of 48. A reading below 50 indicates contraction. The survey found that demand remains weak and new export orders are down.

Mr Haldane told BBC Radio 4’s The World at One that banks remained one of the major impediments to the recovery because they need to own up to their bad debts to restore confidence and get credit flowing again. Failure to come clean would mean “the fog will persist”, he said.

“Investors will be much less willing to put their money into the banking system. They will lack confidence in the banking system and will either charge very high rates for lending that money to banks or will just withdraw their money entirely,” he said.

“More could and should be done to get lending moving as a springboard to getting the economy moving.”

He added that bankers pay had been “ratcheting down” but that there was “still some way to travel”. “Back in 1980, your average investment banker was paid the same as your average lawyer or doctor. By the time we got to 2006, they were being paid four times as much,” he said.

“Have we got further to travel south? I suspect probably yes.”

He also admitted that “with 20-20 hindsight” the Bank should have done more to deflate the bubble ahead of recession.