Mervyn king

The IMF manages to please everyone

A bet-hedging sort of report into the UK’s economy from the IMF today, which largely supports George Osborne’s deficit reduction plan, but will also give some encouragement to his detractors. By way of a summary, here are the parts that might satisfy Osborne himself, as well as Vince Cable, Ed Balls and Mervyn King: The passage that the Chancellor will flash around Westminster comes on the very second page of the IMF document. “Strong fiscal consolidation is under way,” it reads, “and remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks.” And the endorsements for the Chancellor’s deficit reduction plan continue inside, not least in the

Osborne to sell off the Rock

George Osborne will use his Mansion House speech tonight to, in the words of one source, “fire the starting gun” on the sale of Northern Rock.   Robert Peston, who had the story first, reports that “The chancellor hopes that the sale of Northern Rock will send a powerful signal that the banking industry is on a path back to more normal conditions, following the crisis of three years ago.”   In an attempt to maximise return for the taxpayer, the whole of the “good bank” part of Northern Rock will be sold off to a single bidder. This means that the whole issue of discounted bank shares, which splits

Inflation: cock-up, not conspiracy

Britain has the worst inflation in Western Europe; this is today’s story. CPI is 4.5 per cent and RPI is 5.2 per cent. This masks even worse rises which, as the IFS says today, hit the poor hardest. The price of a cauliflower is up 38 per cent to £1.26, potatoes are up 13 per cent to £1.54 a kilo. For millions, these are the most important metrics. Historically, it’s pretty bad. You’d think a Bank of England legally mandated to keep CPI inflation at 2 per cent would be horrified at this, and start vowing to tame the cost of living. After all, this isn’t just a statistic: it

The inflation battle heats up

He left with a warning. “I think that there is a big risk emerging to the credibility of the Bank,” said Andrew Sentance last night, on his final day as a member of the Monetary Policy Committee. And he continued, “If inflation does not come down in the way that the Bank is suggesting — and I think there is a big risk that is the case — then that is going to have a big knock on effect on the credibility of the bank’s commitment to its inflation target.” Sentance’s views are unsurprising. He has, after all, been pushing for an interest rate hike for some time, and for

The growing need for a policy response to the ‘new inflation’

There’s been much debate on these pages about the political implications of higher inflation. Ironically, this morning’s news of record food prices could relieve the pressure on the Bank of England Governor. His argument for caution when it comes to a rate rise is based on the claim that UK inflation is now being driven by events beyond the MPC’s control. Today’s figures reinforce that case, showing that global commodity prices remain a key driver of the rising cost of living in Britain’s households. The same argument doesn’t really work for the Chancellor, whose remit isn’t just to keep headline inflation down, but also to help households cope with the

Cable’s punditry could come unstuck

“It’s not imminent. But you can see this happening.” So sayeth Vince Cable about the prospect of another global financial crisis, in interview with the New Statesman today. To be fair, you can see his point: there is a pervasive sense that the contradictions of the banking sector still haven’t been fixed, and — as I have written recently — our economy, and economies worldwide, are still afflicted by debt of all varieties. But that’s not going to calm those Tories who regard Cable as a combustive liability. In the weeks since the Lib Dems’  annihilation at the polls, the Business Secretary has increasingly reverted to his pre-coalition form: a

Inflation bites back

  Good job we didn’t unravel the bunting after last month’s inflation figures. Because today we discover that CPI inflation rose again in April, by 0.5 percentage points, to 4.5 per cent — its highest level since October 2008. That drop in March does look like a blip after all. Even with RPI inflation continuing to fall (by 0.1 percentage points), we seem to have returned to a grim, upwards trajectory. Most forecasters predict that inflation will keep on rising for the rest of this year, outstripping wage growth along the way. The squeeze on living standards continues: We have dwelt on the political problems this creates for Osborne before,

Andrew Sentance: interest rates must rise

Inflation – the cost of living – is the number one issue in Britain today. It is under-discussed in the House of Commons as MPs have no say in it: the task of controlling inflation lies with Mervyn King and his nine-strong Monetary Policy Committee, and its members are rarely interviewed. Little wonder, as a lot of them should be feeling fairly sheepish. But not Andrew Sentance. He’s been arguing for a rate rise for months, and doesn’t have long left to serve on the MPC, so he can speak quite freely. Inflation has been above target almost all the time he’s been on the MPC, he says, so in

How the banks were framed

A week that started with the Vickers review on banking has closed without another national explosion of banker-bashing. Thank God. Beating up on the banks has lasted almost three years now, and it’s blinding us to the real causes of the financial crisis. The banks are the perfect alibi: blaming them gets everyone off the hook. How, asks Gordon Brown, was a mere Prime Minister to know that banks were doing such fiendishly complicated things? How, asks George Osborne, was an opposition expected to detect what the government could not? How, asks Mervyn King, was the Bank of England governor supposed to know that these bankers had been so wicked?

Panic over? Perhaps not…

Is the inflation panic over? After rising for five consecutive months, CPI inflation went down by a 0.4 percentage points in March, to 4.0 per cent, taking the City by surprise. RPI inflation also went down, by 0.2 percentage points. The numbercrunchers at the Office for National Statistics put it down, largely, to a fall in food and drink prices. The cost of fruit is 2.7 per cent down on last March. The cost of bread and cereals, 2.6 per cent. Yet we shouldn’t get ahead of ourselves. While this will certainly reduce the short-term pressure on the Bank to increase rates — as well as on the nation’s pocketbooks

Osborne needs to make his case for growth

The Guardian have an odd story today. “Business chiefs who backed cuts now doubt UK growth,” runs the headline — suggesting that these sinners are now being confronted with the error of their own ideology. Who are the business chiefs? We have Archie Norman, the retired head of Asda, now part-time chairman of ITV. He “said the government’s growth targets were too optimistic”. Set aside the fact that the government doesn’t make growth targets now, and has subcontracted that the Office for Budget Responsibility. Where is the connection between growth downgrades and cuts? In the imagination of The Guardian, I suspect. Next Andy Bond, another former head of Asda, is

Inflationary troubles ahead of Osborne’s Budget

Unwelcome news for George Osborne: he will tomorrow present his Budget against a backdrop of the highest inflation for 20 years. The RPI index — what the nation called “inflation” until Brown changed the definition — is 5.5 per cent. It hasn’t been this bad since the aftermath of the ERM crisis, an unhappy comparison for the Tories. The CPI index is up to 4.4 per. And those who deploy the usual arguments about global food prices are spiking might wonder: why is Britain now even worse off than Greece?     Even the Zimbabwean media is laughing at us (their inflation is now considerably lower than ours). It’s shocking,

Our monetary policy needs sorting — and quick

Today’s decision to leave base rates at an emergency 0.5 per cent — the lowest since the Bank of England was founded in 1694 — shows how Britain is running out of options. Not even Mervyn King would deny that Britain has an inflation problem: global prices may be up, but the UK seems to have been hit worse than almost any major economy, as I blogged yesterday. With food prices up by 6.3 per cent and CPI inflation by 4.1 per cent, what’s happening to prices? The below graph, again out today from a FTSE350 survey, suggests that pay is up by just 0.5 per cent in the private

Labour’s inflation pitch

Curiouser and curiouser. We in Coffee House have been saying for some time now that – whatever Mervyn King thinks – Britain has the worst inflation in the Western World apart from Greece. An OECD report out today shows we’ve got it worse than most eastern countries too. Korea, Turkey and Estonia are the only eastern nations with higher inflation: But what strikes me most about today is that food prices are soaring here, to an extent far worse than the rest of the world. This is what voters notice most: putting food on the table is very expensive. As Micawber might put it: annual food price inflation 6.3 per

Duncan warns of oil price rise and King of future financial crisis

There are two important political interviews in today’s papers, Alan Duncan in The Times and Mervyn King in the Telegraph. Duncan, the international development minister, echoes Chris Huhne’s warning of ever higher oil prices. He also makes a rather glib remark about how “I don’t think we want to take military action so women can drive in Saudi Arabia.” King’s interview with Charles Moore is fascinating reading. The governor fears  that there could be another banking crisis. He warns, ‘The problem is still there’. But what struck me most were his comments about the Vickers’ review of banking: ‘The key question, in his view, is not why an individual bank

Balls’ shrill attack on King

Ed Balls’ irresponsible attack on Mervyn King is a clearly calculated attempt to undermine the Bank of England for Balls’ own narrow political ends. Balls both approved Mervyn King’s appointment and supported King as Governor when he was Chief Economic Adviser to the Treasury. Balls was central to creating the record deficit left by Labour, yet who has no plan for clearing the mess up. Now he is attacking the Governor of the Bank of England for supporting the Government’s plan to deal with the deficit. In what way is it political for the Governor to support the Government? I’d say that’s deeply non-political. By contrast, to play narrow party

Inflation up again

CPI inflation running at four percent, twice the bank’s target level is a problem for the Bank of England’s Monetary Policy Committee which remains set against a rate increase. I suspect we’ll hear much about how this rise is partly prompted by the one off effects of the VAT rise and the role of global commodity prices in driving inflation. But it is hard to get away from the fact that inflation has been above the two percent target rate for 14 months now. (Personally, I’d favour the scrapping of inflation targeting). The most immediate political consequence of this inflation is that it is hitting living standards. Wages are not rising

Fraser Nelson

Why we need a rate rise

Now that today’s inflation figures are up, to a predictable and predicted 4.0 percent on CPI and 5.2 percent on RPI, we can expect the usual response. Nothing from the government (even though the declining standard of living will eclipse cuts as the no.1 problem of 2011); plenty of shocked news stories; and, then, the round of commentators saying that Mervyn King should “hold his nerve,” and not increase the absurdly low base rates of 0.5 percent. Inflation is temporary, he says, and should be okay again this time next year (that’s what he said about the start of 2011). The Spectator does not have much company in finding fault

King’s credibility is faltering

We at The Spectator have not had much company in criticising Mervyn King for the failure of his monetary policy. The Bank of England governor has a status like the Speaker used to: someone whose position must command respect, otherwise the system collapses. And yet there are Octopuses with a better track record in inflation forecasting. People have been repeating that the Bank’s independence is a great success for so long that it has become a truism. Why? We’ve just had a huge crash, the result of a credit bubble – fuelled by dangerously low lending rates. And the recipe for restoration? Even cheaper debt, with resurgent inflation. The British

Ten points about the Ed Balls interview

Ed Balls gets personal in his interview with the Times (£) today, but not in the way you might expect. For most of the piece he dwells on what the paper calls his “hidden vulnerability” – the effort to contain his stammer. And from there on, the politics seems a touch softer than usual. There are surprisingly few overt attacks on his opponents, and those that make the cut are considerably less violent that we’re used too. Which isn’t to say that the interview lacks politics. No sirree. Here’s a ten-point selection of some of the political highlights (so to speak), with my added comments:      1) Doubling back