Robert Peston has branded the economy “unhealthy” because central banks are artificially sustaining growth both at home and abroad.
Speaking at the Financial Services Expo in London’s Old Billingsgate today, Peston said he was “profoundly concerned” by the UK economy’s overreliance on “short-term painkillers” like quantitative easing rather than dealing with the roots of its economic flaws.
He was also concerned by the situation in the Eurozone, the US and China in particular – where he predicted a crash.
Peston, ITV’s political editor, said: “I am profoundly concerned. I said to you the City is surprisingly relaxed about the degree of uncertainty; they’re relaxed because they believe that whenever we will hit any bump in the road the Bank of England will take evasive action – funnel money through the banks, cut interest rates, create new money through quantitative easing, purchase new assets.
“That is fine a as short-term painkiller. It is not a long-term way to run an economy.
“Eventually if the world sees you as simply generating growth through cutting the cost of money they lose confidence in the value of your currency; they will lose confidence in the integrity of sterling.
“We need to have a fiscal policy and we need to have an industrial policy that generates greater growth and the longer that we simply look to the Bank of England to bail us out the worse the correction will be as and when the markets lose confidence in that as a policy.”
Peston explained that China is currently sustaining growth by lending faster than its GDP, meaning its indebtedness is ever-rising and something has to give.
He warned: “Their failure to recognise that this is not a long-term model means to me that when the crash comes it will be worse for them and for us.
“The economic consequences for a world driven by Chinese growth will be significant; the political consequences will be very significant.”
He felt this could have political as well as economic reverberations, including the danger of China becoming more autocratic.
Peston ended the speech by saying: “The thought I want to leave you with is to do with how unhealthy it is, not just in this country but in the eurozone and in the US, that we’ve become completely reliant on central banks to bail us out when things go wrong and are not, in my view, doing enough to fix the real foundations of our economy.
“Where we are in interest rates is unprecedented – going back well over 100 years. The cost of money is cheaper than it has broadly ever been.
“That’s what our political and economic conundrum is at the moment.
“Is this back to the future, or forward to the past?”