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Outgoing Bank of England Governor responds positively to quarterly inflation report.
The Governor of the Bank of England, Sir Mervyn King, has said the UK economy is set for recovery. Whilst tempering his remarks by saying the “road ahead” will not be smooth, Sir Mervyn said that “there is cause for optimism”.
Following measures in recent years to stabilise the UK economy, the out-going Governor argued that inflation is likely to stay ahead of the banks “2% target for the next two year, but argued that this was down to changes outside of its control”.
Citing university tuition feels and fuel costs Sir Mervyn stated that such factors were a “self-inflicted goal in terms of the damage done to real take-home pay, perhaps another way of trying to implement fiscal consolidation through moving up the price level”.
Predicting that inflation will rise to summer, after being stable at 2.7% for the last four months, Sir Mervyn argued that an increase in inflation would not be “not the result of easy monetary policy” or “reflect what’s going on in the economy”.
Dismissing calls for increased monetary controls the Governor said that whilst there might be temptation to “think that an above target inflation forecast justifies a tighter monetary policy and certainly ensuring inflation returns to target in the medium term is our primary responsibility and objective”.
Addressing concern that higher inflation would lead to price increases for consumers Sir Mervyn posited that the remit of the Bank’s central governing body, the Monetary Policy Committee, was “to deliver price stability in the medium term in a way that avoids undesirable volatility in output in the short run” and that attempting “to bring inflation back to target sooner would risk de-railing the economy and undershooting the target in the medium term”.
The current Governor of the Bank of Canada, Mark Carney, is set to take over from Sir Mervyn later this year.
