The City operated like a "giant hedge fund"
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Charlie Bean said: 'The international net investment position is the most important figure.' Photograph: Stefan Rousseau/PA
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Charlie Bean, the Bank's deputy governor responsible for monetary policy, added that the UK's foreign investment hot streak had cooled and was unlikely to fully recover. A shrinking surplus on investment income from abroad could spook markets and trigger a sharp fall in sterling, he said.
Asked whether Britain could be stuck in a "new normal" of a low-productivity and low-investment economy, Bean said: "It is always possible. We do not fully understand the current weakness of productivity. We have done a lot of work on it down to company level to try to get a better picture. There have been some plausible explanations, one of which, of course, is the possibility that the official data may understate the position."
Bean, who leaves the Bank on 30 June after 14 years of service, said the Office for National Statistics was "doing its best", but some surveys suggested that the British economy was growing more strongly.
"Business surveys suggest output growth is a bit stronger than the official data. Employment growth suggests the same. There may be a measurement error in the data. This should not be taken as a criticism of the ONS. Inevitably, the ONS numbers are just estimates. The division of labour is that the ONS does its best to measure what is happening, and we interpret."
Bean added that a sustainable recovery requires three pillars: a rise in business investment, a pick-up in productivity growth and an expansion in exports.
Britain's current account was last in balance or surplus in 1983, but, Bean said, while the foreign investment figure is the most important, its apparent health belies a contribution from the City that is unsustainable.
"Despite our having run deficits for many years, this net position is close to balance … in large part that is a result of our having run a surplus on investment income' In other words, our investments abroad produced better returns than foreign investors achieved in Britain. Up to the crisis, we were a bit like a giant hedge fund."
But he added that the blow dealt to the financial services sector by the credit crunch could have permanent consequences for the deficit. "There has been a recent deterioration in that component of our current account performance," he said. "Is it likely to be long-lasting or temporary? My view is that it may come back a bit, but not all the way back to where we were before the financial crisis.
"Will that leave us in trouble? I would hesitate to say so, in the sense that countries can run deficits for years. But certainly an adverse net position would leave us vulnerable, making it more likely for the exchange rate to fall sharply were investors to lose faith in the economy. We have seen that happen in the emerging markets."
Commenting on his plans after leaving Threadneedle Street, he said: "The first thing I am going to do is take a holiday in Italy. Then I shall re-establish links with academia [he was a professor at the London School of Economics before joining the Bank] and, I hope, do some interesting things, including in my role as president of the Royal Economic Society."
He added: "It will be only semi-retirement."
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