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Recovery from recession tougher than I thought, says Mervyn King
10 Feb 2010
Bank of England Governor Mervyn King said today that the ailing UK economy continued to "bump along the bottom", although he held out hopes for a "gradual recovery" in output.
His comments came as the Bank's latest inflation report admitted that the UK's crawl out of recession last year was weaker than hoped and lowered November forecasts for the pace of the recovery.
Today's report predicts that inflation will spike at around 3.5% early this year - triggering another open letter to Chancellor Alistair Darling - before falling back below the Bank's 2% target.
Mr King said there were "signs that many economies are on the mend", although "much uncertainty remains" about a sustained rise in global demand.
The pace of the UK recovery is predicted to be "somewhat less strong" than three months ago, with year-on-year growth likely to be around 3.5% by the end of 2010 - rather than the 4% forecast in November.
Huge help for the UK economy through £200 billion in quantitative easing (QE) and record low interest rates countered the headwinds of the "damaged banking system", he said.
He added that it was far too soon to conclude that no further asset purchases under the QE programme to boost the money supply would be needed.
The Bank's inflation forecast hinted at further measures to aid the economy and signalled that interest rates may be slower to rise than City commentators expect.
Although the Bank said inflation prospects remain "unusually uncertain", its forecasts show the consumer prices index slightly undershooting the 2% target in two years' time even if rates are kept at 0.5% and there is no unwinding of QE.
The report also outlined tough times ahead for consumers and the prospect of "significant fiscal contraction" in the years ahead, with households boosting savings amid fears of higher taxes.
The report also warned there was a risk that employment could fall significantly further if the recovery in demand is slower than companies expect.
Mr King denied the UK could soon face the turmoil currently confronted by the beleaguered Greek economy, where fears of a sovereign default have sent shockwaves through markets.
He said this was due to the broad political consensus over the need to tackle the UK deficit and the longer maturity of the country's debt.
"I don't think you can compare the UK with Greece - there are big differences," Mr King added.
He said the UK has a "very large structural deficit which needs to be eliminated", but also played down the chances of the country losing its gold-plated triple A rating.
Mr King said he "could not think of any reason" why the UK should be stripped of its premium rating if action was taken on repairing the public finances.
He added: "It's ours to lose - all we have to do is behave sensibly, and I'm sure we will."
When asked whether the UK could face one or more quarters of negative growth this year, Mr King said the forecasts accommodated the possibility of both falls and rises in the economy.
He said the "real debt problem in the UK was within the banking sector and the financial sector more generally" but institutions were making progress on their balance sheets.
He added that a weaker pound had taken "a bit longer than we thought a year ago" to pass through to export growth.
Reader views (12)
And our next candidate on Mastermind is Mervyn King, an economist from London. His specialist topic is the "Blinking Obvious".
- Nobby Clark, Perth, the Scottish one, 11/02/2010 12:07
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You know what they say,its easy to fall but it can be difficult to get up again
- Lindona, italy, 10/02/2010 15:16
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Just look at King: does he inspire confidence, or the opposite?
To James: the simple fact is, King et al gets PAID to come up with the right answers and actions, clearly he hasn't done so, he's so wishy washy, nor does the BoE show any competence in what it is doing. IOW, if you put a monkey in place of King, would you notice anything different, yet he STILL gets paid. How about if those buffoons only got paid based on positive results?
- Ralph, London, 10/02/2010 13:12
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This man and his team of buddies are clueless. They are the ones who are "bumping along the bottom" waiting for thier big fat pension payoffs. A taxi driver has more understanding of economics and the real world than King.
He is so far out of touch with reality having kept interest rates at artificially low levels for too long thus spuring the crises we now find ourselves in. Get rid of him and his cronies.
- Frank, Copenhagen, Denmark, 10/02/2010 12:57
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I think the statement of Mervyn King says it all. How any confidence at all can be offered to the British economy when such utterings continue to be made by the BOE, they can only undermine all confidence and play into the hands of shorting speculators and hedge funds.
Bank of England Governor Mervyn King said today that the ailing UK economy continued to "bump along the bottom", although he held out hopes for a "gradual recovery" in output.
- Mike, France, 10/02/2010 12:36
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Interesting to read all the comments here. I never knew there were sooooooo many economic and financial experts in the UK - who have just the right prescription to boost our economy. Get back to your boring hum drum pathetic lives. I
- James, London, 10/02/2010 12:34
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Frank,I agree,lets vote a Conservative Government into power,and quadruple unemployment,its a price well worth paying.
- Mary, London, 10/02/2010 12:10
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The UK no longer has a strong manufacturing base, like Germany, The Netherlands and France, on which to base an economic recovery. It´s all been hived off and sold off to foreign companies. Instead, the UK is forced to rely too much in invisible earnings, like insurance, tourism and shipping. These are too prone to fluctuations to be relied upon for long term recovery.
- Graham Rodhouse, Helmond, Netherlands, 10/02/2010 12:07
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What amazes me is that non of the people who are in charge of our ecomomy whether politicians or bankers have never actually been in charge of a business where they have had to worry about meeting a weekly payroll, or paying crippling business rates, or noticing that virtually everything being sold is being made abroad. With the wage that Mr King and his peer group is on they are detached from reality, and assume that things will get better, well they wont, until UK businesses can compete on a level playing field with other EU countries for business rates for a start. Kraft arnt going to Poland because the workers are any better, its because the operating costs are cheaper. We need to revise our charges to industry so manufacturing costs less.
- Trader Jim, Uphill Struggle, 10/02/2010 11:56
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The patience of British households has already been sorely tried by the complete ineptitude of the government and Bank of England. They lowered interest rates too late and too quickly; they should have gradually reduced the rate over 12 months starting at the beginning of 2008. That is not hindsight, I said that at the beginning of 2008. It didn't take a genius to see the recession coming; yet Mssrs. King, Brown, Darling, etc. completely missed the signs!
- Dannyp, Egham, 10/02/2010 11:35
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Confidence will not return until we have a change of government.
- Frank, Home Counties, England., 10/02/2010 11:21
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Printing money ('Quantative Easing"), a crashing pound causing expensive imports, onerous EU Employment Law regulation, high energy prices, etc. etc.;-it's obvious to the man in the street, if not to the 'experts', that inflation will soon well outstrip the interest rate to mean that savings will diminish. So the recession will continue...
- Jon Kent, Hertford. UK, 10/02/2010 09:34
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