Like any manager who has spent big without results, Mervyn King can trot out reasons for the Bank’s poor forecasting record and inability to hit the inflation target
It’s been a while since Sir Mervyn King used a footballing analogy to flavour his opening remarks at the Bank of England’s inflation report press conference, but the Aston Villa-supporting governor was back on form today.
Uncertainty, he said, could sometimes add to the spice of life, as with the conclusion to the Premier League last Sunday, but it had the opposite effect on the economy. The risks associated with the crisis in the eurozone are making it tougher for the monetary policy committee to chart the right course for the economy.
King did not elaborate on which Premier League football team the UK resembled. Certainly not Manchester City, given that output is still 4% below where it was when the recession began in 2008 and is not projected to reach its previous peak until 2014. That’s serious relegation form.
What’s more, the recent results of Threadneedle Street FC have not been mightily impressive. As usual, King had to admit that growth had turned out to be lower than expected three months ago while inflation was higher. It will now be the middle of next year before the annual increase in the cost of living comes back down to the government’s 2% target. Interest rates have been pegged at 0.5% for more than three years and £325bn has been pumped into the economy through quantitative easing, but the economy has flatlined for the past five quarters.
Like any Premier League manager who has spent big without any marked improvement in results, the governor can trot out a whole host of reasons for the Bank’s poor forecasting record and its inability to hit the inflation target. Higher VAT, the depreciation in sterling, rising commodity prices, the fact that the euro is – as the governor so vividly put it – “tearing itself apart”: all these have made it unrealistic to expect the MPC to keep growth close to its long-term average and inflation at 2%.
There’s something in this, of course. King is managing an economy which, like his beloved Villa, has seen much better days. The economy has deep structural weaknesses and has been through a colossal banking crisis that has caused the deepest recession since the 1930s. The slow-motion disintegration of the euro means there is no obvious reason why Britain should go leaping up the growth league table.
Yet, in some ways, King should count himself lucky. Very few owners of Premier League football clubs would be willing to accept such a poor run of results. That includes Villa, who sacked their manager within 24 hours of the season ending.