You can tell when Sir Mervyn King wants to make a point: he throws in a football analogy.
He did it a decade ago, warning that changing the Bank’s inflation target was like “moving the goalposts” during a free kick. He did it in 2005 when, in his Mais Lecture, he compared monetary policy and central bankers’ actions to Diego Maradona’s amazing goal against England in the 1986 World Cup (the second, really amazing, one, gratuitously reproduced below).
The legendary live commentary by Victor Hugo Morales of the Maradona’s Goal of the Century, which exemplifies its characteristic style. From the broadcast fo…
And now he’s done it again. At today’s Inflation Report the Bank of England Governor said that the consumer price index is stubbornly high largely because of the Government and regulators. Their policies on tuition fees, on regulated transport costs and utility bills, are responsible for an extra 1 percentage points on inflation. It is, he said (repeatedly), an “own goal”.
The direct impact of these policies is to push inflation higher (as you can see from the table below comparing the impact now with their inflation contribution in previous years) and so lengthen the squeeze so many families are facing on their disposable incomes, as earnings fail to keep up with prices.
It was only one of a number of very subtle jabs Sir Mervyn took at the Government today, the other being a warning that it must try to implement more “supply side” reforms to bring the economy back to health. Quite what these might entail, he was rather more vague about, but he namechecked the Government’s own Hesiltine Report and the LSE’s Growth Commission report as a good starting point.
The underlying sense is that the Bank of England feels it is running out of policies it can carry out to try to jump start Britain’s economy. Under its latest growth forecast, the UK economy will not recover its pre-crisis peak until 2015 – in other words seven years of what NIESR would call a “depression”. Meanwhile, households’ incomes are, in real inflation-adjusted terms, at the lowest level since 2002 (according to figures separately published by the Office for National Statistics).
And yet the Bank’s enormous efforts to try to turn this around haven’t yet borne fruit. £375bn has been pumped into the economy since 2009, a bigger balance sheet increase (as a percentage of GDP) than any other major central bank around the world, Sir Mervyn pointed out. Yet, he added, there are “limits to how much we can boost domestic demand through general monetary stimulus”.
The clear hint is that while the Bank is not yet ready to start lifting interest rates and withdrawing the quantitative easing stimulus it looks less likely than previously to do more in the way of QE in the near future. In part, this may be a pragmatic decision: Mark Carney is soon taking over from Sir Mervyn, and there is a sense in which it would be odd for the current Governor to go out all guns blazing.
But it also reflects the fact that there is a kind of exhaustion in central banking circles: they have done more than has ever been done before to try to stimulate the economy, and yet it hasn’t brought the UK back to complete health. Sir Mervyn said: “It’s as if you’re running up an ever steeper hill. What can we do about that ever steeper hill?”
The implication is that it’s up to the Government to do more to stimulate the economy. Now, Sir Mervyn was careful not to imply that this would mean more fiscal stimulus – more borrowing in George Osborne’s Budget next month – but it did feel as if he was kicking the ball back to the Chancellor.
Then again, if you’re one of those people who suspect that Sir Mervyn is always coming up with lame excuses for missing his inflation targets, that’s one alternative interpretation for today’s “own goal” analogy.
Either way, it’s hard to get away from the growing sense of fin de l’epoque at the Bank. Today was the 20th anniversary of the Bank’s Inflation Report. Every single one of the press conferences (80 of them) has been chaired by Sir Mervyn (he led them even when Sir Eddie George was Governor). In other words, he has been presenting these reports and presiding over UK economic policy in a high profile position since Britain was just getting over Black Wednesday and its departure from the Exchange Rate Mechanism in 1993. Like him or loathe him, when he steps down in June, it really will be the end of an era.
Incidentally, you can find more on the Inflation Report both on the Sky News website and, if you’re after some bite-sized charts, on my newish tumblr site. You can always get to it by clicking the “Charts” button at the top of the page.