The NICE decade is long forgotten - bring on a more SOBER affair was the message from Bank of England governor Mervyn King when he spoke in the Black Country on Tuesday night.
Addressing gathered business leaders from across the region at the Black Country Chamber event at the Copthorne at Merry Hill, Mr King said the ‘Non-Inflationary Consistent Expansion’ of the 1990s would need to be replaced by a decade of ‘Savings, Orderly Budgets, and Equitable Rebalancing’ if the economy was going to recover from its current doldrums.
“A sober decade may not be fun but it is necessary for our economic health,” he said.
He added that historically his role had been more concerned with ensuring there was not too much money in the system whereas now he was still looking as to whether there was a need for further action from the Bank of England to boost the economy in the event that sluggish growth heightened the risk of inflation falling below its official 2 per cent target.
“The key question is whether the current inflation rate signals that inflation will persist above target,” he said. “The MPC is conscious that the continuing high level of inflation poses the risk that inflation expectations may move up. And it may be some while before inflation returns to target.
“But at present, there is also a risk – at least as large – that once the temporary upward influences on inflation dissipate, the influence of spare capacity in the economy will push inflation below the target.
"Consistent with that possibility, a range of other indicators – growth in broad money, pay, and the pressure of demand on supply, that together are likely to be a more reliable guide to inflationary pressure looking ahead – all remain extremely subdued.
"So not only can monetary policy play a role in smoothing the rebalancing process, it needs to do so if the outlook for inflation is to remain in line with the 2 per cent target in the medium term.”
