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Time to be On Your Way, Mervyn
Mervyn King’s excuses for the resurgence of inflation in Britain are becoming more and more desperate.
He has now warned that higher fuel bills may push inflation up to 5% this year. He is announcing his excuses in advance now!
The Bank remains statutorily responsible for ensuring that inflation remains as close as possible to 2%, remember. Fat chance.
Mr King said there is:
a great deal of uncertainty about the outlook for inflation
He said that inflation
may not fall back as strongly as expected
He said these were “short term” and “volatile” factors, and that:
Our medium term judgement about inflation and growth is broadly the same as in February.
He yet again said that inflation would “begin falling” next year closer to the 2% target.
This time last year he was telling us inflation would fall this year. Now it’s next year. With Mervyn, it’s always jam tomorrow and never jam today.
Gordon Brown’s decision to make the Bank of England responsible for setting interest rates was hailed as a master stroke, and also supported strongly by the Tories. It was supposed to take political considerations out of the process. And yet it seems that political considerations have never been taken account of more strongly than now. The Bank of England has openly been worrying about economic growth in its setting of interest rates, rather than worrying about controlling inflation.
It is just that now, with the Bank responsible for rates, the government can wash its hands of the matter.
The Bank of England’s record on getting interest rates right has been utterly disastrous. They have lurched from too loose money, to too tight, and back to too loose again. The reason seems to be that they are targeting economic activity rather than inflation. This was the tendency that Bank of England independence was supposed to tackle!
They are, under Mervyn King, taking us down a road we have travelled before, in the 1970s. “Just a little bit of inflation will help the economy grow.” “Just a little bit more can’t hurt, can it?” “We need to think about jobs! Inflation is just a number.”
And before you know it, inflation is out of control, there is a Sterling crisis, interest rates get rammed up into the teens and economic collapse follows.
The European Central Bank, of course, is made of sterner stuff, and has already begun increasing interest rates. But then the ECB is dominated by Germany, whose monetary authorities have a record that puts ours to shame.
Mervyn King and the others on the Monetary Policy Committee need to be reminded that if they do not intend to meet their responsibilities to keep inflation low, then they should resign. Maybe the Chancellor is the man to remind them?
George Osborne, the Boy Chancellor, read Modern History at University, spent some time as a data entry clerk for the NHS and then on the shop floor at Selfridge’s, then worked at Conservative Central Office, the Ministry of Agriculture, and the Political Office at 10 Downing Street. He followed that up with a stint as William Hague’s speech writer and political secretary, before becoming an MP. Eminently qualified to be Chancellor of the Exchequer then.
Meanwhile, the Tories have John Redwood, a former Merchant Banker and a former cabinet minister, who most certainly does understand economic policy, languishing on the back benches because David Cameron prefers the company of Liberal Democrats to that of real Conservatives.
I guess Mervyn King is safe then.