Bank of England head Mervyn King says he can’t save the British economy and that it’s not his job to do so. This is refreshing. It’s also bad news for US companies counting on British consumers to offset US domestic weakness.
King sees UK inflation accelerating for several quarters–just as a deteriorating housing market and plunging consumer sentiment begin to smack the British economy (the world’s 5th largest). Unlike his US counterpart, Ben Bernanke, who doesn’t give a damn about inflation, King suggested that soaring prices make rate cuts impossible for the BoE, which has pledged to keep inflation under a 2% ceiling. Bloomberg:
“The Monetary Policy Committee is facing its most difficult challenge yet,” Governor Mervyn King told reporters in London after the bank published its quarterly forecasts. “We are travelling along a bumpy road as the economy rebalances. Monetary policy shouldn’t try to prevent that adjustment.” It “must focus on bringing inflation back to the target in the medium term.”
Investors reduced bets on rate cuts after King’s comments, which came as evidence mounts that the housing-market slump is dragging down economic growth. The U.K.’s inflation rate jumped the most since 2002 in April, climbing to 3 per cent, and any deterioration will require King to write a letter to the government explaining how he plans to get prices under control.
It’s good to know that in Britain, at least, inflation is taken seriously and central bankers understand that their role isn’t to try and tame the business cycle, but to protect the value of money. If only we could import some of that common sense stateside.