Sir Mervyn King’s sporting jokes are almost as bad as the Bank of England’s ability to publish accurate economic forecasts. As he unveiled the August Inflation Report this morning, the Governor said:
‘Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness, but it is slowly healing. Many of the conditions necessary for a recovery are in place, and the MPC will continue to do all it can to bring about that recovery. As I have said many times, the recovery and rebalancing of our economy will be a long, slow process. It is to our Olympic team that we should look for inspiration. They have shown us the importance of total commitment when trying to achieve a goal that may lie some years ahead.’
As expected, Sir Mervyn slashed the growth forecast for the UK economy in 2012 from his May prediction of 0.8 per cent to ‘close to zero’, which sounds like a more polite way of saying ‘zero’. He tried to defend the Bank’s poor record of regularly revising down its growth forecasts in the question-and-answer session afterwards, saying the underlying thinking was correct.
Either way, as John Redwood points out, King’s forecasts are at odds with those issued by the Treasury. Redwood says:
If the Bank is right and the Treasury have to lower their forecasts next time, that will mean a further addition to state borrowing levels, as the automatic stabilisers will mean less tax revenue and more benefit spending than the Treasury forecasts.
The recovery will be ‘long’ and ‘slow’ as a result of the eurozone crisis, King said. He also hedged his bets on when we’d see a return to the good old days, arguing it was ‘impossible’ to say what the time period for recovery would be. But he gave an emphatic ‘no’ when asked whether the Bank should stop using monetary policy to offset the Treasury’s fiscal tightening and call instead for George Osborne to switch to a Plan B. David Cameron’s response on the radio this was morning to the lower forecasts was this:
‘Yes, it’s tough, yes, the growth figures have been disappointing, but there is a rebalancing of the economy taking place, and we just have to roll up our sleeves.’
That rolling of sleeves will hopefully involve supply-side reform that kickstarts growth in the autumn. James has already revealed that the Treasury is looking at further planning reform to do just that, but the Institute of Economic Affairs points out today that the ‘coalition needs to focus on creating the space for major tax cuts’ and ‘counter the uncertainty facing businesses by making the labour market more flexible’. That’s not Plan B as Ed Balls likes to paint it, more an integral part of Plan A.Tags: Bank of England, Economy, Growth, Sir Mervyn King, UK politics