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It's time to enjoy festive cheer, says Governor Carney

BANK of England Governor Mark Carney has highlighted positives for the UK and US economies by declaring that, for the first time in a long while, "it seems reasonable to expect the hopes and dreams of the holiday season to be fulfilled".

In a speech to the Economic Club of New York yesterday, Mr Carney said: "The Ghost of Christmas Present is a cheerful spirit.

"As uncertainty diminishes, credit conditions improve and balance-sheet repair progresses, monetary policy is gaining traction.

"The strength of the UK recovery and the fall in its unemployment rate suggest the equilibrium real interest rate is now rising gradually back towards zero."

Mr Carney highlighted a recent warning by former US Treasury Secretary Larry Summers about a possibility of "secular stagnation".

The Bank of England Governor said: "The American and British experiences underscore that recovery is not possible without a meaningful and transparent recapitalisation of the banking system, and that households need to de-lever before they have the confidence to consume again.

"The question now is whether such progress is sufficient for durable, strong and balanced recoveries over the medium term."

Mr Carney added: "The pessimists would argue that it isn't. Their case starts from the observation that advanced economy growth rates remain below pre-crisis trends, despite the scale of the fall and years of emergency monetary stimulus.

"Fundamentally, pessimists point to the pre-crisis period when, retrospectively, loose financial conditions did not generate a boom in output and associated inflation. They ask, 'Could stagnation be the new normal?'."

Considering this question, Mr Carney warned that the "Ghost of Christmas Past should not be forgotten".

He also emphasised that, while recovery might be gaining pace, the US and UK economies were "a long way from normal", cautioning that leverage was still high and that weak demand for advanced economy exports could persist for some time.

However, he added: "While it is unsurprising that the ideas behind secular stagnation are being revived, it would be a mistake to rush to a more extreme macroeconomic response.

"There is a long history of pessimism in economics, from Thomas Malthus through Alvin Hansen to Robert Gordon. Such worries have proven misplaced and scepticism is warranted now."

However, he highlighted factors which merited "vigilance but not panic", noting that "despite admirable progress by British households in recent years, aggregate debt levels remain high at 140% of incomes".

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