Economy: GDP Forecast

Lord Hughes of Woodside Excerpts

Monday 29th July 2013 Lords Chamber

[Lord Newby]

My Lords, the noble Lord, Lord Peston, is an extremely eminent economist and he knows, as a good Keynesian, that the key at this point of the cycle is the change in animal spirits—the sense to which people have confidence to invest. Animal spirits have been very significantly subdued over recent years. There is a suggestion in every single figure that we now see that they are returning to the positive. That, more than any single thing that the Government now do, will be what drives growth forward.

[Lord Hughes of Woodside]

My Lords, the Minister has taken great comfort from the reduction in the amount of interest paid. Does he have any sympathy at all for those on fixed incomes and small and medium savers, for whom the policy of low interest rates has been quite ruinous?

[Lord Newby]

I do, my Lords, but with interest rates you cannot have it both ways. You cannot have low interest rates for people who want to borrow and high interest rates for those who want to save. On balance, the Government’s view is that having had interest rates low has kept families being able to spend, compared with having higher interest rates. For example, a 1% increase in mortgage rates would have added £12 billion per year to interest payments. It would have sucked that out of the economy. If you have that kind of reduction in expenditure and the kind of diminution of growth which it entails it harms everybody, even those who are savers.