So pursuing a strategy of monetary accommodation will be in the interests of savers in the medium-term, even if it feels like the opposite in the short-run. We should all want to see sufficient growth such that interest rates can start to rise. 4  BIS central bankers’ speeches  Taking all that together, my policy vote has been driven by the need to continue supporting the required real adjustments – which still have much to work through – but cautiously, so as not to risk inflation expectations becoming de-anchored. My personal view is that faster growth in the near-term might actually help keep inflation down for a while as productivity growth picks up. Eventually, however, reductions in the degree of spare capacity in the economy should bring domestic inflationary pressures back to normal, so it will be important that other factors influencing inflation do not remain elevated. The MPC is committed to getting inflation back to around the 2% target – which it will in due course, in the absence of further shocks and if we are careful with policy. Monetary accommodation should generally be helpful to balance sheet rebuilding, but there are limits. For example, I am not convinced that a further reduction in interest rates would stimulate demand at this stage. Cuts in interest rates work in part by encouraging spending (or investment) at the expense of saving.
The household sector, of course, has people in many different circumstances, so one can’t tell a single story. But, subject to the vagaries of data revisions, it appears that people on average are saving much more than they were pre-crisis. Some may be trying to reduce debt levels; some saving to fill holes in expected pensions; some for university tuition fees and some in response to heightened uncertainty about future employment. Meanwhile, many of those who want to leverage up – such as first-time house buyers – are having to save for a larger deposit than they would have done pre-crisis. Consumption growth has been very muted: in 2012 it grew at less than half its average rate in the pre-crisis decade. And the level of consumption remains about 4% below its pre-crisis peak. One possible household reaction to lower expected incomes is for people to try and work harder, and certainly to avoid unemployment if at all possible. This means being willing to  2  BIS central bankers’ speeches  stay in (or find) work even though the benefits from that – real wages – are being squeezed. Labour market participation – the number of people in work or actively seeking employment – has held up well since the 2008/09 recession; this contrasts with previous recessions when workers were discouraged from the labour market and the participation rate fell sharply.