U.K. Banks Central to Slow Post-Crisis Growth: Daly

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March 3 (Bloomberg) -- Kevin Daly, chief U.K. economist at Goldman Sachs, discusses the influence of the U.K. banking system over slow growth following the economic crisis on Bloomberg Television’s “On The Move.”

Sunday times keybank -- sunday times." talk to me about productivity.

It is based upon your report.

Why are we in that position?

A defining characteristic of the economy.

Not just in absolute terms.

It is particularly the u.s., the so-called technological frontier as it continues to progress in the u.k. has fallen further behind.

It is our view that one of the key themes has been the problem of the u.k. banking system has been instrumental to explain a lot of the post crisis puzzles and the productivity puzzle.


The band plays a crucial role in allocating.

Because of problems subsequent to the crisis, capital has not been allocated to the factories where it is needed most.

It is our view that what was taken for the system had initially boosted growth and in time they would help to boost productivity as well.

But we think, it is our thesis that it will improve in the future.

We are beginning to reallocate resource from the banking system, lending to the real economy.

What does it do for our products desperate attempt to story -- productivity story?

Will we catch up with the u.s.? it with a couple of things that you are right that the u.k. has fallen behind the u.s. and that makes it easier to catch up.

It may sound counterintuitive.

The poor performance in the past makes it easier to grow faster in the future.

The u.k. prior to the financial sector had convergence taking place for 40 years.

Given how much that on our estimates is likely to make the activity around one third to one half a percentage point faster per year because of this.

What does that mean for policy and economy going forward?

For the bank of england, if we are right on productivity and it begins to improve, it means that, all else equal, the bank of england can tighten later and at a slower pace.

Thank you very much.

Spencer dale says they are comfortable with the central judgment that there is slack in the economy.

Are we all far too far ahead of ourselves in terms of a rate hike spring of 2015? consistent with our analysis, which we think is -- of the gaps which we think is pretty substantial, we think the bank of england won't raise until the qe of 2016. this productivity question is the key uncertainty that the bank of england is grappling with.

We are on the optimistic side, but we need to see how things have evolved going forward.

As things stand now, i think things are somewhat towards an earlier . nevertheless, i'm am happy being dovish to the market.

In terms of -- in terms of the position for our economy, we have had a review by the bank of england a few weeks ago.

Phase one guidance has ended.

Inflation is taking down, give me your take.

Many things just aren't robust as everyone else makes?

The data remains a strong.

We are also above consensus on growth, but it is interesting that since the february inflation report, guidance will come into play when the seven percent unemployment threshold was reached.

We have not had unemployment that has risen from 7.127 point two.

By the time we get the may inflation report, we think it will still be above the seven percent threshold, which will imply that phase one of guidance is still in place.

Inflation is falling below target for the first time since 2009. we expect it will be down five percent by the may inflation report.

That is a long way below target.

It could be sizing up for having been very hawkish, or the market being very hawkish around the february inflation report.

By the time you get to make, things could look a lot more dovish.

As it relates to this meeting, we don't expect any dramatic changes.

Very briefly, mark carney's phrase that rate hikes will be gradual, do you concur with that?

When they come they will be moderate and limited?

100%. the credit spreads are much higher now than they were before.

Some of that will reduce over time, but i do think that we are not going back to the precrisis era of very narrow spreads.

All else equal, that would mean that the equal of real -- the equilibrium level will be lower than before the crisis.

What we also believe is that although rate rises will be gradual, the first rate rise won't occur for some time.

We are dovish, but it is the speed with which they are likely to rise and the timing of the first site.

Kevin daly, u.k. economist at

This text has been automatically generated. It may not be 100% accurate.


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