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Governor Mervyn King today launched a spirited defence of the Bank of England's much-criticised record on economic forecasts and interest rates and denied the monetary policy committee had “taken its eye off the ball”.
The Bank has come under fire for repeatedly getting predictions wrong on economic growth and inflation. Critics say it has consistently over-estimated GDP and underestimated inflation growth.
Today, in its Quarterly Inflation Report, the Bank sharply revised upwards its forecasts for inflation in 2011 and reduced GDP predictions from those made in the last quarterly report in May.
However, King said inflation would fall back to below the Bank's 2% target in 2011 and blamed the persistent overshooting of that goal on repeated “inflation shocks” — one-off factors like changes to VAT, volatile energy prices and the 25% depreciation in the value of the pound.
Referring to his own term for the 10 years before the financial crisis, which he calls the “Nice” or Non-inflationary Continuous Expansion decade, he struck a defiant tone in defence of the Bank's doveish attitude.
“During the Nice decade, we became used to inflation remaining exceptionally close to target.
“In contrast, over the past three years inflation has been volatile and above the target for much of the time.
“That does not mean the MPC has taken its eye off the inflation ball, nor has it gone soft on inflation. We have not. Rather it is the consequence of a series of large price-level shocks,” he said.
King added that those price shocks would continue to affect inflation going forward.
In what appeared to be a direct criticism of those saying the inflation overshoot undermines the Bank's reputation, he said: “If we had raised interest rates significantly we would have had to drag the economy back into recession again. Far from increasing our credibility, that would have undermined our credibility."
His comments were taken as meaning the MPC will probably keep interest rates low despite the likely continuation of high inflation.
Some economists suggest the Bank's forecasts still look overly optimistic.
Chris Williamson at research group Markit said surveys suggest GDP growth has already slowed sharply from the 1.1% surge seen in the second quarter, perhaps to as low as 0.5%.
Reader views (13)
Not sure I agree with your comments John. A weak pound is needed to boost our exports (agreed they may not be at a 70s level) to take our dependency off the service sector to generate UK's tax revenues, it's all about encouraging exporters and a weak pound does that. As for imports, the price of these will rise (making them less competitive against our own products)but whether this will cause supply inflation is debatable with retailers etc less able to pass additional costs on.
- Matt, Ware, 11/08/2010 16:40
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coplani, Inverurie, U.K
All well and good moving Parliament but pretty soon it wont matter because we will bow to our EU masters.
- bobby, berks, 11/08/2010 12:59
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Relocate Parliament to Manchester....or Carlisle...somewhere more central to England/ Scotland.
As it is Parliament is too near the City of London and as we have seen this cosy relationship is doing the UK no good at all.
All the wealth is now centred in the South East around London and as you can see, it is as if London and surrounding area is a different country.
If the demise of the UK, whilst at the same time the "City" is getting wealthier, is to be reversed, then Parliament must be separated from the City.
The simplest way to do this is to physically remove Parliament from the City.
This is a radical idea, but no more radical, than getting the people of Britain to suffer at the hands of the City Slickers.
The question is not whether the UK is sustainable, but whether the power and wealth of the "City", can be sustained...There must now be millions of people in the S.E sitting in offices, consuming and in fact not producing anything.
Look at the obvious....Wherebys we had giant industrial areas, when Britain was a producing country...Now we have concrete/ steel/ glass super structures in the City..paid for by the British people...See the buildings...see where the money is...
If this priviledged city arrangement continues, without a doubt there will be inner city decay elsewhere in the UK...So London will be supported/ propped up, but elsewhere in the UK will decay. (Other than farming, fishing and oil industries).
So if this Government is to prevent a divided
- coplani, Inverurie, U.K., 11/08/2010 12:32
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Now the article has been corrected and doesn't rant about inflation.The Bank clearly states in it's report that inflation will fall within a 2 year horizon to below the 2% target so no stagflation.
I must say that the standard of reporting on economics in the newspaper is woeful.
- Stewart, London, 11/08/2010 11:17
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Any idiot would know, prolonged zero interest rates is not good economic sense for an economy. False accounting I call it. As for the banks gigantic turnaround in profits this year, that would be enough to ask questions "What are they up to this time?"
As for Mervyn and his gang, in trying to please political heads, they have lost all sense of reality of the econmoic situation. They must shop like the rest of us to see in the past twelve months how food prices have risen on a weekly basis. If they didn't notice it's because they've to much liquidty to be bothered about it unlike us less well off mortals.
Mervyn, got off that chair of yours, get out on the streets and start speaking to business people, the people on the street and you'll be downcasting a lot more than you have.
- Tessa, London, 11/08/2010 11:10
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So far his stance hasn’t done much to even stimilate an Ant…he just enjoys basking in his glory of being Governor, Mervyn King must think he’s playing Monopoly!
- Jamie, London, 11/08/2010 10:57
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looks like stagflation ahead.
- paul., busted britain., 11/08/2010 10:48
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Puppets of the Rothchilds, the lot of them...
- DC, Ealing, 11/08/2010 10:33
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If you were doing your job properly, ie targetting inflation, you would be raising interest rates. That you have failed consistently to predict inflation or deal with it means you are failing in your job and also showing you are not independent. You do have a hard task but the BOE is also culpable for the mess we are in and not dealing with inflation is not going to help us in the future.
- nickspurs, london, 11/08/2010 09:51
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Every time the pound makes gains against other currencies, somebody in the financial sector makes detrimental comments and it slides back. The benifit of a stong pound makes our imports cheaper and since we import more than we export I would have thought that a strong pound is what is needed. If we had the industrial structure of old I could see the sense in a week pound, however a weak pound benifits the money grabbers that have moved thier buisnesses abroad.
- John Bandey, St Pardoux, France, 11/08/2010 09:12
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Is there anything left in the UK to sell?
Only memoirs written by devious, mealy-mouthed, two-faced, bloated, self-serving, hypocritical, parasite Nu£ieBore government ministers.
- Reuben Camara, Plot 1, Morecambe Compound, UKSSR, 11/08/2010 09:09
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Britain to recover ? i do not think so. When the Government allows the sell off, of our Power Companies to foreign Governments or firms. In turn they let them charge what they like for their Electric or Gas, how can our country compete in this World ?
- stan white, leeds uk, 11/08/2010 08:49
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I has been clear for well over 12 months now that the so-called 'model' used by the BOE does not properly comprehend the relative decline of the £sterling. Instead it focuses upon 'surplus capacity' which is an invalid model.
So, why are we paying Mervyn King? He is not competent to do the job.
- Anglo, Sussex England, 11/08/2010 08:47
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