Merv’s Last Swerve

So farewell then Mervyn King: the current Governor of the Bank of England, and head of its Monetary Policy Committee (MPC) will step down later this year, and so his quarterly statement on the UK economy yesterday will be his last. And that statement was unusual: King was suddenly full of optimism, recovery was “in sight”, and there was a “momentum” building.

This was, by the most fortunate of coincidences, exactly the kind of message that the Rt Hon Gideon George Oliver Osborne, heir to the seventeenth Baronet, would have liked the Governor to give. It was also the kind of message that the Daily Mail wanted to hear, with Alex Brummer reporting that King had been “Slow off the mark, but finally he’s winning the battle”.

In the approved Mail version of events, King and his colleagues “have become the unlikely superstars of the financial firmament”. They alone, it seems, were responsible for saving the UK’s banking system after the 2008 crisis, and moreover were behind the taming of inflation from what passed as routine in the previous century. This would be music to Merv’s ears.

Sadly, though, the view is not only simplistic, but also plain flat wrong. Nor does it mention that inflation has been beyond the target range for the past five years. Somehow the factual stuff on inflation – that Ken Clarke and later Pa Broon are due rather more credit than King – got lost. Brown’s role in getting a grip after the 2008 crisis (and that of Alistair Darling) also somehow got missed.

On top of that, this suddenly optimistic note struck by the departing Governor is rather at odds with what he was saying late last year: in November, he was telling that the UK was still at risk of a triple-dip recession, and trimmed the forecast for GDP growth to a mere 1%. Moreover, he warned that “persistently” low growth would last until the next General Election.

And in March this year – that’s just two months ago – he warned that the financial crisis was “far from over”, and that “fundamental changes are needed to the international system before confidence can be regained”. He asserted “there will surely be many unexpected twists and turns before we can truly say that the crisis is indeed over”. What a difference two months makes.

All of a sudden, the recession risk and prospect of a continuing financial crisis are gone. It is exactly as Osborne would have asked, were he the kind of Chancellor of the Exchequer to interfere, which I’m sure he is not. The reek of a final statement which is both self-justifying and Government friendly is inescapable, and that impression is something that Merv will not be able to swerve.

Independent Bank Of England? What independent Bank Of England?