mervyn king

Claire Jones

The only thing we have to fear is fear itself.

That’s according to Andy Haldane, the executive director of financial stability at the Bank of England, who said in August markets were over-pessimistic as a result of “psychological scarring” from the events of recent years.

It would seem that what Mr Haldane labelled the “fear factor” has also afflicted his boss, Sir Mervyn King, who yesterday claimed “this is the most serious financial crisis we’ve seen at least since the 1930s, if not ever.”  Read more

Sir Mervyn King secured a decisive victory over the Treasury this week when the latter finally took on the task of credit easing. For the governor of the Bank of England – better placed to do the job, but adamant that this would taint the Bank’s independence – it was a triumph of bureaucratic precision over pragmatism; and of order over action. Britain will not thank him for it if institutional purity comes at the cost of jobs and corporate financing.

The Treasury disguised its surrender: chancellor George Osborne won plaudits from the Conservative party faithful for pledging to bring forward plans to ease the flow of credit to small- and medium-sized companies. But the proper reaction to his words would have been one of bemusement.

Credit easing is far from a new policy lever. It was first announced by Alistair Darling, Mr Osborne’s predecessor, on January 19 2009 and clarified in an exchange of letters between the governor and the then chancellor later that month.

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Claire Jones

Sir Mervyn King is not known for his fondness for international travel, preferring to send one of his two deputies – Charlie Bean and Paul Tucker – whenever possible.

The governor, however, has traditionally made an exception for the IMF/ World Bank autumn meetings. Read more

The Bank of England’s quarterly bulletin is usually a very dull and conservative document. This quarter, it has been more widely read for its article on the impact of quantitative easing.

It is easy to quibble with the estimates, but I am not going there. More useful is the understanding it gives of what the Bank thinks the effect of QE is on growth and inflation. That way we can gain some insight of its own assessment of the transmission mechanism. The article concludes:

If we compute the range across the different estimation methods, using the middle of the ranges of the bottom-up estimates , this would suggest that QE may have raised the level of real GDP by 1.5% to 2% and increased inflation by between 0.75 to 1.5 percentage points.

These rules of thumb are, as the QB says, very uncertain. They are also very useful. Read more

Adam Posen’s speech today – in which he argues for more quantitative easing and new forms of QE – raises two important issues which I will cover in two posts. Here I will discuss words and deeds at the Bank of England’s Monetary Policy Committee. My second post will cover Mr Posen’s calls for more exotic forms of QE.

A big problem the MPC is causing for those seeking to understand UK monetary policy is that confusion reigns about what it would take to trigger QE2 in Britain. And as so often recently, this is because the Bank of England appears to find evidence to justify policy decisions rather than allow evidence to guide policy. Read more

Claire Jones

It seems the chancellor doesn’t listen to the governor of the Bank of England.

George Osborne said last night that Project Merlin, the government’s flagship agreement to appease public anger over the banking crisis, was “already delivering more lending to SMEs”.

Not according to Sir Mervyn. Read more

Claire Jones

Two of the three FOMC dissenters on Wednesday said why they broke ranks at last week’s meeting.

Aside from their view that the conditional commitment to keep rates on hold until 2013 looked suspiciously like the Fed was trying to buoy financial markets, there was another common strand to their discord.

Both Mr Fisher and Mr Plosser claimed monetary policy was limited in what it could do to spur growth. This is becoming a popular argument among senior central bankers. Read more

Claire Jones

Welcome to the live blog where we will cover the Bank of England’s Inflation Report press conference.

All times are London time; By Claire Jones in London.

This post should update automatically every three minutes, although it may take longer on mobile devices.

12.25 The live blog will now close. But continue to follow for further news and analysis of the inflation report and the governor’s comments.

12.21 The global outlook dominated proceedings at the press conference.

The governor was surprisingly outspoken about the ECB’s decision to buy Italian and Spanish debt, saying that this meant it was now at the “outer limits” of what a central bank can do.

Sir Mervyn also mentioned several times that global imbalances were behind recent events and that there needed to be structural adjustments made around the world.

In such a climate, it is wise for the governor to emphasise the limits to what the Bank’s monetary policy can do to cure the UK’s economic ills.

It is now abundantly clear that the Bank believes there has been as a supply shock. If this is the case, then the trade-off between inflation and growth will have changed. Read more

Claire Jones

A barometer of the Bank of England’s interest, or otherwise, in financial stability has been to calculate the proportion of expenditure devoted to it relative to monetary policy.

Take a recent grilling of chairman of the Bank’s court Sir David Lees, and some of his fellow members, by Treasury Committee chair Andrew Tyrie: Read more

Claire Jones

Sir Mervyn King has twice of late attacked eurozone officials’ line on the region’s sovereign debt crisis, first at the inaugural Financial Policy Committee press briefing, then to parliament last Tuesday. On both occasions he trashed the view that the crisis was a problem of liquidity, not solvency, saying that unless officials accepted that sovereigns were broke, “we will never find an answer to it”.

He is not the only European central banker whose recent barbs have challenged the eurozone orthodoxy. Read more

Ralph Atkins

It is a brave luncheon speaker who chooses Finnish monetary policy between the first and second world wars as his subject. But Mervyn King, Bank of England governor, just pulled it off at a conference in Helsinki, marking the 200th anniversary of the country’s central bank. (Read the speech here.)

King may have selected his off-beat subject to avoid generating unwanted headlines – there was a strong media presence following the European Central Bank’s meeting here on Thursday. But it was also a subject close to his heart – and is more compelling than you might thing. Read more

Bank of England governor Mervyn King sparked another firestorm at the weekend with his interview with the Daily Telegraph. Banks and bankers have been licking their wounds after his rather unflattering remarks.

Although it must be noted that very little in the interview was new, the governor’s use of much more colourful language for financial regulation than for monetary policy, suggests he knew and wanted his remarks on banking to make a splash.

For me, there were three interesting elements in the interview. There are a few other issues others reported heavily but are either simple misunderstandings of the governor or willful misreporting of his words. Read more

Two interesting tidbits on inflation today.

First, at the Treasury Select Committee this morning, Mervyn King, Bank governor said he had essentially defeated Britain’s inflation problem.

“The projections that we published in the inflation report a couple of weeks ago have the characteristic that the inflationary pressures are pretty much back to target by around the middle of this year.”

To show this requires a bit of simple statistical manipulation of the Bank’s latest inflation forecasts and the application of the most simple seasonal adjustment techniques to the quarterly inflation data to get the following chart. It is very similar to one published by David Miles, MPC member,  in his speech last week (when I was on holiday) which uses more sophisticated seasonal adjustment.

The idea of the chart is rather neat because Read more

Is the Bank of England maintaining its independence from government? This question has just come from the government – one of the more interesting questions emanating from a Treasury select committee, currently under way.

The questioner took issue with a comment from George Osborne’s letter of reply to Mervyn King’s inflation explanation in February. In the letter, the chancellor said: “For its part, the government’s commitment to delivering its fiscal consolidation plan continues to provide the MPC with the space it needs to target low inflation.”

Mr King was quick to scotch the implication of fiscal-monetary policy co-ordination.   “We’ve certainly discussed the case for and against fiscal consolidation and I’ve explained the stance the MPC has taken on monetary policy,” said the governor, but: “There has never been any attempt on any occasion to influence the MPC on what decisions it should take.” Read more

Only twice since the Bank gained independence has a sitting governor been outvoted. One was in August 2005, when the committee voted for a cut while the governor preferred a hold. In the other, two years later, the governor voted for a rate rise, and was outvoted to keep rates on hold. Might we be about to see a third case?

For the prosecution, three pieces of evidence. The first is the voting pattern. Never since the Bank gained independence has there been such a long period in which members of the committee have voted against the governor. Typically, there’s the odd vote for a change, while the governor and a majority prefer to hold. Demand for change then either grows – taking the governor with it – or fizzles out. But dissent has now lasted for nine consecutive Bank of England meetings – the longest on record. (The previous record was seven.)

Next, an insightful point from Alan Clarke of BNP Paribas. Read more

Imported inflation from emerging markets is a short-run factor which the Bank will take into account, Mervyn King has said at today’s release of the quarterly inflation report. “In the very long-run, however, inflation is not determined beyond these shores but domestically.”

This is a surprising statement, and one at odds with some of his European peers, at the very least. Lorenzo Bini Smaghi, ECB executive board member, recently warned of a sea change in inflation dynamics. “Unlike the last decade,” he said, “the process of reducing the prices of manufactured goods imported from developing countries seems to have ended, particularly in respect of products imported from China.” Read more

The title of this post might seem an odd question. But this long analysis with oodles of quotes has demonstrated to me that I no longer have a good answer. I am confused and I know I am not alone.

Judging by Mervyn King’s 2006 Mansion house speech, the governor of the Bank will be concerned that there is confusion about the Bank’s objective and its analysis. Then, he said the answer to my question was fundamental for outsiders’ understanding of a central bank’s monetary policy:

“in order to form judgements about the likely path of interest rates over somewhat longer time horizons, markets do require some information from the central bank.  To be precise, two key pieces of information – our objective, and our analysis of the economy. Our objective is the 2% inflation target given to us by the Chancellor and plain for all to see.  And our analysis of the economy is published in the minutes of our monthly meetings, in more detail in our quarterly Inflation Report, and in speeches by members of the MPC.”
(emphasis in original)

The Bank’s objective and analysis might have been plain to see in the hubristic days of 2006, but it is far from clear today, particularly after last week’s speech by the governor. Read more

Mervyn King has just delivered an important speech in Newcastle. As ever with the Bank of England governor, it is extremely well-written and his argument is tight. The speech is, however, infused with overwhelming self-belief and even arrogance in the face of difficult economic circumstances. Those, in a nutshell, are Mr King’s great strengths and weaknesses.

This is far from an attack on the governor. I think his “big picture” view is correct, but his unwillingness to concede mistakes undermines policy and damages the Bank’s credibility, making the Bank’s job of getting its message across rather harder than it need be.

The big picture should come from him.

“We must not lose sight of the big picture. Large – very large – shocks to relative prices are an inevitable part of the real adjustment vital to the rebalancing of the UK economy.

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A small sigh of relief from London today. Bank of England governor Mervyn King is to be the vice-chair of the newly launched European Systemic Risk Board, established yesterday and whose inaugural meeting takes place January 20, 2011. Relief, because the appointment suggests eurozone concerns won’t dominate the Board, and that the UK’s banking-driven economy will be represented.

Relief, however, will be limited in some quarters. There is a relative lack of bankers and technical experts, who really understand the tricks of the banking trade. Even if there are ex-bankers among the various levels of hierachy and sub-committees, it is not the same as plugging the institution directly into the banking sector. This is not an oversight but part of the Act: “No member of the General Board (whether voting or on-voting) shall have a function in the financial industry.”

There are two Advisory Committees because “the composition of the ESRB will be very high level …[and] it can happen that the ESRB needs to draw on more specific competences than the ones usually available at the ECB.” The Technical committee comprises representatives nominated by central bankers and regulators – there will be about 60 of them. The Scientific committee, which should have 15 independent experts – though suggested categories are academics, trade unions and small businesses. Read more

Gordon Brown has staked his claim to be the saviour of advanced economies in the crisis, by claiming in his new book that he pressed the case for recapitalising banks around the world. For this foresight, the former British prime minister has received adulatory reviews by nobel prize-winning economists.

“Hang on a second,” Mervyn King, governor of the Bank of England, has a right to say. One of the latest Wikileaks US embassy cables shows King was pressing in March 2008 for significant bank recapitalisations and a stigma-free method to allow banks to get rid of their unwanted toxic assets without resorting to central banks. That is well before Brown’s actions that Autumn.

Here is the summary from the 17 March cable:

“King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there’s a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the US, UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks.”

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