Economic downturn on the way warns King



Mervyn King warns that tough times are on the way and there is little
the Bank of England can do about it.

His comments on rising inflation and falling growth sound like he's
worried about the spectre of stagflation (a la 70's) In this scenario
interest rate cuts (which King seems against anyway) are a double edged
sword which could lead to calamity........

The Times October 12, 2005

Bank cannot avert downturn, warns King
By Gary Duncan, Economics Editor

THE Bank of England's Governor braced Britain for tougher economic
times last night as he sounded a warning that the Bank could not stave
off a downturn triggered by soaring oil prices

Mervyn King admitted that the Bank's Monetary Policy Committee had
been caught off guard by an abrupt fall in growth and a sharp
acceleration in inflation this year.

He emphasised the dilemma that the Bank faced from these conflicting
pressures. Steeling the nation for economic turbulence, he suggested
that those hoping that the MPC could resolve all of the economy's
problems with interest rate cuts would be disappointed.

"The MPC has been surprised by both the slowdown and the rate at
which inflation has picked up," Mr King told business leaders in

But in a blunt warning, he said: "Expectations of its ability to
stabilise the economy must be realistic. The adverse effect of the rise
in the oil price on consumers' purchasing power cannot be avoided . .
.. There has grown up in recent years a false sense of our ability to
maintain a smooth and steady growth rate of output."

Mr King said that from 1992 the economy's performance "might be
characterised as the Great Stability". This had fostered a view that
the Bank could guarantee continuous steady growth.

But the Governor said such a belief was false. "The business cycle
has not been abolished," he said. He pointed to his earlier warnings
that the Bank's past strategy of stimulating consumer demand to boost
growth "carried the risk that there could be a sharp correction to .
.. . consumer spending".

That risk had now materialised. "With the additional impact of higher
oil prices, real disposable incomes are rising more slowly, and the
long-awaited rebalancing of the economy away from consumer spending to
business investment and net exports is underway," he said. But the
Bank must also contend with inflation which would "for a short while
be above target". "Both inflation and output may be somewhat more
volatile than the calm waters to which we had become accustomed," he
said. "And the MPC can do little to change that."

In comments that will further dent hopes of rate cuts, the Governor
also said that less than half the recent rise in inflation could be
blamed on oil.,,9063-1822039,00.html



Peter Watson

In message said:
Mervyn King warns that tough times are on the way and there is little
the Bank of England can do about it.

No!! Reeeeeeeeeeeeeally????????????????????????

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question