Bank plays down independence role

21 February 2012 Last updated at 21:05 GMT Charles Bean was speaking to a business audience in Glasgow The future role of the Bank of England if Scotland becomes independent is for politicians to decide rather than the central bank, its deputy governor said.

Charles Bean, speaking to a business audience in Glasgow, also responded to criticism that low interest rates were hitting savers and pensioners hard.

And he said there was a need for the economy to return to growth.

If not capacity would be scrapped and unemployed people would become disconnected from the labour market.

The deputy governor's comment on the independence debate was a response to the question of which currency an independent Scotland would use, which has been hotly debated in recent weeks.

Monetary arrangements

The SNP government at Holyrood wants Scotland to continue using the pound sterling, and to have a formal alliance with the rest of the UK, involving the backing of the Bank of England.

Mr Bean said, in his speech, that "monetary arrangements would be one of many matters needing to be settled".

"But the exact form of those arrangements would be for the Westminster and Scottish parliaments to decide, not the Bank of England," he said.

"Until asked to do otherwise, the bank will continue to use the powers delegated to us by the UK parliament to try to deliver, to the best of our ability, monetary and financial stability for the United Kingdom as a whole."

The senior central banker also talked about the path of the economy recovery, saying falling inflation should ease the squeeze on household spending.

He said that should help "a modest pick-up in household spending", but growth was expected to "remain sluggish in the first half of the year".

Mr Bean said "the longer capacity lies idle, the more likely it is to be scrapped completely. And the longer people are out of work, the more likely they are to become disconnected from the labour market altogether".

"So there is an added incentive to getting the recovery back on track quickly," he said.

Commenting on the impact on savers and those buying pension annuities, who find the low interest rates are hurting the value of some investments, the deputy governor said: "Savers have every right to feel aggrieved at losing out. After all, they did nothing to cause the financial crisis.

"But neither did most of those in work, who have also seen a substantial squeeze in their real incomes.

"And unemployment, particularly among the young, has risen as output has fallen. There have been few winners over the past few years."

He added that pension funds should also have benefited from some of their investments being more valuable as a result of the measures being taken by the Bank of England to support the economy.