On the evening that it was announced that UK borrowing for September would reach a record high of £16.2bn, Mervyn King, the Governor of the Bank of England, issued a stark warning to the country, describing the next decade as ‘sobering’ one consisting of ‘savings, orderly budgets and equitable re-balancing’.
During an audience in the West-Midlands, the Governor went out of his way to illustrate the difficulties ahead for all. In his speech the Governor stated: “The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while.” During his talk Mr King also warned others that governments and countries must avoid the tendency to revert to protectionism and self-interest, or face repeating the mistakes of the 1930’s depression.
During his speech, the Governor also admitted that inflation was unlikely to return to the bank’s target of 2% and will instead, remain at 3.1% for the near future. Mr King also hinted that the BoE may well initiate another round of quantitative easing; some analysts expect the bank to pump in a further £100bn over the next year to help boost the UK’s stagnant economy.
In a recent meeting of the Bank of England’s Monetary Policy Committee seven members again voted against any change in UK interest rates. The notes of the October meeting revealed that Mr Andrew Sentance once again argued for a 0.25% rise in interest rates. The notes also showed that another member of the board, a Mr Ponsen, proposed a further round of quantitative easing, totalling £50m.
I saw an interesting piece of commentary last night, which speculated that Mervyn’s annoucement is, at least partly, aimed at reducing confidence in the pound on the international markets, so that the exchange rates fall & British exports become relatively cheaper, which should aid British business on the international scene. Of course it would also make foreign imports more expensive, which would hit consumers, and producers, in other ways, but overall should help the UK’s Balance of Trade.