14 Nov 2012

Ten golden quotes from Sir Mervyn King

Devaluation, energy rigging, monetisation, and decades of pain: ten remarkable King quotesThere were so many interesting reflections in Mervyn King’s inflation report and press conference that I think are worthy of note.  I’ll just list them.


1. The pound needs to fall…

“If the unfavourable world environment persists, it may be unreasonable to expect anything other than a slow and protracted recovery absent a further fall in the real exchange rate.”

 2. Is King really talking down the pound?…

“I think it’s fair to say that the increase in the effective exchange rate of sterling -after all in the last year, just over, 15 months, since the middle of 2011 when the euro area crisis intensified, the effective exchange rate of sterling has risen by 8 per cent and against the euro by 12 per cent. That is not a welcome development.”

3. Inflation is the energy companies fault..


“Domestic gas/electricity prices are rising faster than wholesale prices” suggesting energy is “a sector where market influences are weak”

4. and the energy market is not free..

“The rise in energy prices was largely the result of increases in costs other than wholesale energy prices.  It’s not that market gas and electricity prices have gone up, it’s that the other costs that are being used to justify the price increases have gone up”.

5. But at least the BoE can be “proud” of UK wage restraint:…

“Wage inflation has been remarkably low at around 2 per cent a year. That’s a real test of whether we have allowed domestically generated inflation to pick up. We haven’t. This is the first time since the Second World War when the United Kingdom has been able to absorb a very large depreciation of its currency without domestically generated inflation wage costs picking up. I think that’s an achievement for monetary policy and I think the MPC can be rightly proud of that”

 6. Meanwhile move along nothing to see in Osborne £35bn QE raid:

“I think it’s a lot of fuss about nothing with this scheme.  I don’t think it affects anything very much”

7. But its up to politicians if they want to monetise Britain’s debt…

“I mean Parliament can always decide to do what it wants, Parliament is supreme.  But the Monetary Policy Committee certainly won’t do that.”

 8. Meanwhile UK banks needing to purge balance sheets…

“the inevitable consequences of [the underlying problem] are that some of the debts will not be repaid in full.  I think we need to recognise that; that’s more true elsewhere than it is in the United Kingdom”.

9. .. of zombie loans

“You’re not seeing companies going out of business at the same rate as in the past.  Some of that is a good thing, but there is an element to which some of it may be more worrying for the longer term.  But trying to disentangle those two effects is very difficult to do.” (Chief Economist Spencer Dale)

 10. Overall: DECADES until normality

“I think if you take a very long term perspective, of decades, I certainly see no reason at all to suppose that the potential output of the UK will be any less than we thought it was a few years ago”.

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