Andrew Sentence is a former member of the Bank of England Monetary Policy Committee, the body responsible for setting UK interest rates. He is now Senior Economic Adviser at PwC and his latest book, Rediscovering Growth, is part of the Perspectives series.
He spoke to the Prospector on a range of economic subjects, ranging from domestic concerns to macroeconomic policy. The interview will be published here in full over the coming days
JE: British growth has been uprated for this year—is Osborne being proved right on austerity?
AS: When we talk about economic growth, you first of all have to put the UK in the context of the western economies as a whole. And we have to look at the challenges that the western economies are now facing since the financial crisis. When I look back to the progress of the western economies over my working career, there has been a very long wave of growth, that really started to get established in the early to mid-1980s. It was briefly interrupted by the early 90s recession, but most economies got back on track after that, and growth continued until 2007. We had a 25 year expansion period for the western economies, where some economies did better than others. The UK did relatively well and the United States did relatively well. Some continental European economies did better than others.
There were three powerful tailwinds behind this wave of growth. Easy money and a deregulated financial system; a prolonged period in which imports became cheaper because of the globalisation expansion of the world economy to embrace China and other low cost producers; and a confidence that grew in the political and economic system that governments and central banks could keep economies on an even keel by broadly following the right policies.
All three tailwinds have been withdrawn by recent economic and financial developments. The deregulated financial system has been replaced by a more regulated an…