In a Biblical reference, Sir Mervyn King last night said that Britain may only be halfway through “even lean years” before seeing a return to easier economic times. At the London’s Mansion House last night, the Bank of England governor warned that shortcomings during the “seven years of plenty” prior to 2007 will now keep the economy tied up until 2014.
No Interest Rate Rises
He made it clear that he has no plans to raise interest rates from the .5% level at the moment. Dismissing Labour’s demand for changes, Sir Mervyn endorsed Chancellor George Osborn’s plans to reduce the deficit. As Sir Mervyn said, “Of course, there can always be differences of judgment about the overall stance of policy, but to change the broad policy mix would make little sense.”
Countering the criticism about his interest rate plan, he said,
“We could have raised bank rates significantly so that inflation today would have been closer to the target.”
But it “would have meant a weaker recovery and falls in output despite our having experienced the worst downturn in output since the Great Depression.”
Economic Need
He did concede that at some point the rates will need to rise so that inflation can come down to the 2% goal. He warned those present not to be complacent about the economy, as he explained that the “great recession” isn’t over. He said that there are still problems in the eurozone and that those imbalances “should concern us all and will certainly affect us all.”
He also said that the government cannot be asked to step in again as it did in 2008 to help the banking system. He applauded the Coalition’s austerity program as well, putting him at odds with Labour’s Shadow Chancellor Ed Balls.
