91�ȱ�

Low interest rates should encourage savers to go out and spend their funds to inject some life into the economy, the deputy governor of the Bank of England has said.

Charlie Bean, who sits on the committee which determines the Bank rate, said savers should "eat into" the capital they have built up during low-rate times.

The Bank rate has been at a record low of 0.5% since March 2009.

"What we are trying to do by our policy is encourage more spending, ideally we would like to see that in the form of more business spending," he told Channel 4 News.

"But part of the mechanism that might encourage that is having more household spending so in the short term we want to see households not saving more but spending more."

He said that savers had benefited from high rates in the past and now they could eat into their capital when rates were low.

So is this sound advice? The 91�ȱ� News website sought two opposing views.

Time to spend

Vicky Redwood, senior UK economist at Capital Economics, says:

"Charlie Bean has been criticised for suggesting that consumers may need to dip into their savings in order to spend more.

"But that is exactly what lower interest rates and looser monetary policy is designed to encourage. Lower interest rates reduce the returns on saving and hence increase the incentive to spend - with higher consumer spending then boosting overall economic activity.

"Indeed, data released this week by the Office for National Statistics showed that without a sharp drop in household saving in the second quarter, the drop in households' incomes would have fed directly through to a sharp drop in their spending - and potentially prompted the economy to slip back into recession.

"Of course, in the longer-run, households need to save more and borrow less - as I am sure Charlie Bean would agree.

"But right now, with the recovery faltering, what the economy needs is for people to get out and spend."

Time to save

Brian Johnson, insolvency partner at HW Fisher chartered accountants, says:

"You can see the Bank's logic, as more people spending will act as a stimulus to the economy.

"However, by urging people to spend the Bank of England is asking the British public to take a real leap of faith, especially when faced with considerable uncertainty in the form of public sector cuts and fiscal tightening.

"The British public will also be baffled by the mixed messages it is receiving. On the one hand we have the government saying that our country needs to massively cut its debt, and as soon as possible, on the other hand we have the Bank of England telling us to spend, spend, spend.

"Charlie Bean's message also completely contradicts what people have been urged to do over the past few years, namely pay down their debts and prepare themselves for the age of austerity.

"A paradox of thrift it may be but for the Bank of England to openly encourage the public to spend in such an uncertain climate is a dangerous strategy that may well backfire."