LONDON (MNI) – UK growth is now close to zero after some recovery
in 2009 and 2010, Bank of England Monetary Policy Committee Member David
Miles says in a speech today, giving a grim assessment of the economic
landscape.

UK GDP is now 4% below its 2007 pre-crisis peak and is more than
10% below its pre-crisis trend path, Miles noted.

“…the UK has been through an exceptionally severe recession. The
level of real GDP has fallen by about 4% since its pre-crisis peak in
2007 and remains well over 10% below its pre-crisis trend path … After
some recovery during 2009 and 2010, growth has fallen back to close to
zero. The unemployment rate has increased from just over 5% at the end
of 2007 to 8%…,” Miles said in the speech, which was mainly focused on
the UK housing market.

These gloomy remarks hint that Miles will be a supporter of more
quantitative easing by the BOE.

The housing market has suffered significantly as a result of the
recession, Miles said – not surprisingly, given the fall in real
disposable household income and uncertainty over future prospects for
household income:

“It is not surprising that the recession and the financial stresses
have had a huge impact on the housing market. The real disposable income
of the majority of households has fallen significantly; uncertainty
about future levels of incomes has increased sharply”.

Miles also said that the “sudden tightening in mortgage
availability” was “causing severe difficulties – most clearly in the
construction sector”.

While over time, the UK economy would likely return to more normal
rates of growth and to less uncertainty about the future, Miles implied
this process could take some time.

“I believe that it is likely that we will get back . maybe slowly .
to more normal rates of economic growth and that households’ uncertainty
about the future will fall back. And as that happens monetary policy
will move back to a more normal setting”.

But the house market would never be the same as pre-crisis, Miles
said. Homeowners would be required to hold more equity in their homes
and would have to save for longer to build up deposits, raising the
average of home ownership.

Reiterating comments he has made before on this subject, Miles said
that monetary policy would need to be ‘recalibrated’ as rates would
likely become a less potent policy weapon in this less-leveraged, but
more stable economic environment.

“With a smaller stock of mortgages relative to gross housing
wealth, a change in interest rates has a proportionally smaller impact
on households’ income and, for many households, on their consumption”.

UK Prime Minister David Cameron said on Monday that the government
was trying to tackle the sources of the credit crunch and that this was
the argument behind the government’s plans to underwrite mortgages for
first-time buyers and boost new house building by relaxing planning
laws.

–London Newsroom; tel: +44 20 7862 7499; email: dthomas@marketnews.com

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