Tweet
Bank's No 2 to stand down early
The deputy governor of the Bank of England, in charge of the stability of the financial system, is to quit.
More...
More...
Loading...
-
Tags: association, authorities, authority, bank, bbc, books, britain, british, building, business, chairman, challenge, conditions, consumer, costs, credit, crisis, document, download, economic, economy, employment, energy, families, finance, financial, financial services, find, global, government, housing, institutions, interest, meant, mortgage, negotiating, rates, regulators, secretary, select, speeches, standards, version, watchdog, words -
Darling sets out new Bank remit
In his first Mansion House speech, Chancellor Alistair Darling unveils a new role for the Bank of England.
More... -
Bank governor offers bleak view
Bank of England chief Mervyn King says the UK faces "the most difficult economic challenge for two decades".
More...Comment
-
Re: Bank governor offers bleak view
Page last updated at 05:14 GMT, Thursday, 19 June 2008 06:14 UK
E-mail this to a friend 
Printable version
Bank governor offers bleak view
Mervyn King on take-home pay
The UK faces its "most difficult economic challenge for two decades", the Bank of England governor has said.
Mervyn King was speaking at the Mansion House dinner and made it clear that inflation was set to rise, while growth and house prices were likely to fall.
Mr King also warned that real take-home pay would stagnate, making life difficult for some families.
His words came as Chancellor Alistair Darling said the Bank would have new powers over UK financial stability.
This would be in addition to its objective of setting interest rates, he told the annual dinner of business leaders.
It has also emerged that Sir John Gieve is to stand down early as Deputy Governor of the Bank of England.
'Not an easy time'
Mr King said that the Bank had the "right framework" to make sure inflation returned to the government's 2% target and that economic growth recovered.
He said the Bank's rate-setting Monetary Policy Committee (MPC) was "prepared to take whatever action is needed" to bring inflation down.
READ THE FULL SPEECHES
Alistair Darling's inaugural Mansion House speech [1.5MB]
Mervyn King's Mansion House speech [155.26KB]
Most computers will open this document automatically, but you may need Adobe Reader
Download the reader here
The BBC's economics editor Hugh Pym said that this meant "in other words, interest rate rises couldn't be ruled out". But Mr King added that no monetary policy could prevent the current effects of rising food and energy prices on living standards.
Neither could interest rate cuts coax banks, which are currently re-evaluating risk and keeping a tight grasp on their balance sheet, to be more generous in their lending to house buyers.
And he warned that higher living costs were likely to restrain consumer spending to a far greater extent than tighter lending conditions as a result of the credit crisis.
"It will not be an easy time, and I know that some families will find it particularly difficult," he warned.
These predictions were echoed by Adrian Coles, of the Building Societies' Association.
He said it would be "the first time in about ten or twelve years that we've had no increase in real pay", prompting him to conclude that "people are really going to notice a difference in the economic environment".
Mr King also warned that "the era of cheap mortgage finance that underpinned the housing market in 2006, and the first half of 2007, is over".
'Act decisively'
In his first speech to the annual dinner, the chancellor emphasised the need to tackle inflation, although he pointed out that the current rate of 3.3% "remains low" compared to the 1970s "when it reached over 26%".
Mr Darling said the new powers given to the Bank would see a new Financial Stability Committee set up to guide the Bank's operations in this field.
"It will bring valuable, external expertise with City experience to bear on the Bank's decision making," he said.
"The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions," Mr Darling added.
Alistair Darling talks about the Bank's new remit
He intimated that the proposals would clarify and enhance the powers of the Bank of England and the UK financial watchdog, the Financial Services Authority, in addition to improving co-ordination between the regulators.
More details will come in a letter to the Treasury Select Committee chairman John McFall on Thursday.
Mr Darling's stance was upbeat, arguing that the UK would continue to grow despite "global difficulties".
He said: "Independent forecasters expect UK inflation to fall back next year.
"Employment is at a record high. Many order books are full. British business is competing and winning all over the world. Our economy is flexible and resilient."
Pay deals
As part of his strategy to tackle consumer inflation, Mr Darling again called for pay restraint in both the private and public sector.
Shadow chancellor George Osborne told the BBC that if he were running the Treasury he would not rule out re-negotiating public sector pay deals.
"We need to be helping people with the rising cost of living, not hitting them," he said.
Meanwhile, shadow chief secretary to the Treasury Philip Hammond called the chancellor's speech a "missed opportunity".
"What Britain needed from the Mansion House speech was a display of economic leadership. Instead all we got were re-hashed announcements and no new ideas," he said.
Comment
-
Brace yourselves: Bank of England boss warns of low pay rises and soaring bills in a
Millions of families must brace themselves for a gruelling period with finances stretched to breaking point, the Bank of England governor warned last night.
More...Comment
-
Bank of England's Bean jumps to deputy governor's chair
Charles Bean to replace Rachel Lomax, while economist Spencer Dale joins monetary policy committee
More...Comment
Comment