Bank chief warns of 'overshoot' By Ed Crooks, Economics Editor - 15 Feb 2000 02:49GMT
Eddie George, governor of the Bank of England, on Monday warned about threats to the world economy and urged the private sector to prepare for the next big financial crisis.
Mr George said Britain and the US were "operating close to overall capacity with ultimately unsustainable growth of domestic demand" a clear signal that he expects interest rates to keep on rising.
In a speech to the Bankers' Club annual banquet in London he said financial markets could "overshoot". Unless banks and other financial institutions prepared themselves, "when the next storm breaks as it undoubtedly will at some point we will again find that we are making things up as we go along".
Mr George described imbalances between large industrial countries as the most immediate challenge facing the world economy.
He said capital flows out of Europe were weakening the euro and causing inflation, while flows into the US were fuelling consumer demand by pushing up share prices, and flows into Japan were driving up the yen and putting economic recovery at risk.
While it was possible these flows would gradually subside, he said, we might see "a more abrupt adjustment" in other words, a crash.
He warned there had been little progress on agreements for dealing with financial crises since the Cologne summit of the Group of Seven leading industrial countries last June. The principle agreed then was that banks and other private sector investors should not always expect governments or the International Monetary Fund to bail them out.
Support packages such as those arranged for South Korea and Indonesia might not be forthcoming next time there was a financial collapse.