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British Economy Showing Signs Of Good Progress, Says Deputy Governor Of Bank Of England

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The economy is improving, according to a senior Bank of England official | PA

There is "reason for some optimism" for the British economy over the coming period, the deputy governor of the Bank of England has said.

The economy has been "bumping along the bottom" for two years but there are now signs of progress in dealing with problems in the eurozone and the banking system and expectations of lower inflation, Charlie Bean said.

His comments came after the UK emerged from double-dip recession on Thursday, with figures showing that the economy grew by 1% in the third quarter, after nine months of negative growth.

Chief Secretary to the Treasury Danny Alexander accepted that the past two years have been more difficult economically than the Government expected when it put in place its deficit reduction programme in 2010.

But he rejected suggestions that austerity is to blame for sluggish growth and said that he would still have backed cuts on the same scale, even if he knew at the time of the 2010 comprehensive spending review that growth over the subsequent two-and-a-half years would be just 0.6%, rather than the 6% that was forecast at the time.

The Liberal Democrat Cabinet minister told BBC1's Sunday Politics that the impact of the eurozone crisis and commodity price rises means that "growth has been much slower than we would have liked over the last two to three years".

He said: "These are stronger headwinds than we expected. Things have been more difficult than we expected. We know when we came into office that they were going to be difficult but I don't think that means that the path we chose was wrong.

"I am saying that if we hadn't gone for the austerity programme that we did - the deficit reduction, the spending reductions and so on - then our economy would have been in a much worse position.

"Of course when you make decisions that are about reducing people's benefits, having to put up VAT, all of these things have an effect on the economy. But I think the net effect of having chosen a path of credibility and building confidence in Britain's ability to pay its way is the right answer for the British economy."

Mr Bean cautioned against an over-optimistic response to last week's GDP figures, pointing out that a proportion of the growth was caused by one-off factors like the Olympics.

But he said households can expect to see less of a squeeze on their incomes in the coming months.

Speaking to Sky News's Murnaghan show, the bank's deputy governor said: "The big picture here is of an economy that has been bumping along the bottom for two years.

"We do think there is reason for some optimism going forward. Some of the headwinds we have been struggling against in the past couple of years will be abating somewhat.

"Most particularly, we have seen a big squeeze on households' real spending power: commodity prices, oil prices have risen, obviously the increase in VAT as well.

"Going forward, that squeeze should not be so intense. Utility prices will be going up again this autumn and probably a spike in food prices because of the unusual weather but, generally speaking, real household incomes won't be squeezed quite as much.

"On top of that there has been some progress in dealing with the eurozone problems. There is still a long way to go there but again a slightly better picture and also some signs that maybe conditions are improving in the banking system."

Mr Alexander said that he and Lib Dem leader Nick Clegg will be joining Prime Minister David Cameron and Chancellor George Osborne in meetings of the "Quad" over the coming weeks to thrash out the contents of the autumn statement which will give details of the Government's economic plans.

He refused to be drawn on the contents of the December 5 statement but told Sunday Politics that he still backs a mansion tax on expensive properties, despite Mr Osborne's opposition to the idea.

"Making sure that the wealthiest in this country, the people who have the most, contribute the most in the next round of deficit reduction is a central principle for Liberal Democrats and we will not bring forward a package that doesn't meet that objective," he said.

Labour's shadow business secretary Chuka Umunna welcomed last week's growth figures but said the brighter economic conditions have not yet translated into changes which could be felt by families and businesses.

Mr Umunna told Mr Murnaghan: "It is good news that, with the help of the Olympics and after the longest double-dip recession since the Second World War, we saw a positive number last week.

"But I think the statistics are one thing, how people feel is another.

"Businesses have seen small-business lending contract. They are not seeing the orders coming through. Families and individuals are still seeing the squeeze on their living standards. The announcement at Ford that 1,100 jobs will be going is quite a totemic decision, with Ford announcing that they are going to stop vehicle production in the UK in a sector which is doing incredibly well otherwise.

"No complacency but it is important that they put in place the foundations for a recovery to now set in which they choked off.

"All we saw last week was essentially things going back to the position we were in last year. There has essentially been no growth since then. Since the Government's comprehensive spending review, our economy has grown 0.6% while Germany and the US have grown by over 3%.

"The problem we have got is that we are still bouncing along the bottom. There should be much stronger growth now."
Liberal Democrat deputy leader Simon Hughes told Mr Murnaghan that he believes Britain is "turning the corner" economically.

"The good news is that we have at last seen growth bigger than projected in the last quarter," said Mr Hughes.

"But we know we didn't have it in the previous quarter, so we can't suddenly say everything is sorted out because it needs to continue in the quarter we are in and then go on continuing.

"The definition of it being choppy is correct ... Of course we are not there yet, of course it is the beginning, but I sense very gently that we are turning the corner and we wouldn't have been able to do so unless we had a secure base for the economy on which to do that."