Interview with a Governor


Mervyn King: "We did that (QE) because the news from the rest of the world in the past few months has been very poor"

Surprise, surprise, Mervyn King doesn't think this batch of quantitative easing (QE) is simply about keeping up appearances.

When I interviewed him this afternoon, he said quantitative easing had worked before, and it will work again.

But the message running through his answers was that the job of rescuing the recovery couldn't be left to central banks alone - that's true of the UK, and for the broader global economy.

He also admitted that "throwing money" at the problem could not be the whole answer. Though of course, that is exactly what he, or at least a majority of the MPC, have today decided to do.

Piece in the puzzle

As we know, the Governor thinks international leaders need to step up to the plate, to resolve global imbalances - and make progress at next month's summit in Cannes.

Though he said we shouldn't expect too much to be achieved in a few short weeks.

On the home front, he admitted - explicitly - that QE had given a lot more help to the City than to small businesses, out in the real economy (you can watch for yourself if you don't believe me).

But small business lending, he said, was only a tiny piece of the macro puzzle - albeit a very important one.

Even in good times, total lending to small businesses in the UK is a fraction - maybe a tenth - of the amount the Bank today said it would inject into the economy.

Feeling savers' pain

Two and a half years since the policy was launched, there are many in the City who say the Bank should have tried to do things differently - use the money created with quantitative easing to help private businesses more directly, rather than simply buying government bonds.

But the way the Governor tells it, that's not the Bank of England's job. It's the job of the banks - if only the Chancellor could find a good way to encourage them to do it.

Some will see that as a statement of reality. Others, like the FT's Chris Giles, will say it is the mark of a "belligerent" Bank of England governor who puts "purity before pragmatism".

But there's no doubt that savers will be the biggest short-term losers from today's decision. Some of them went to the Bank today to make their point.

The Governor said, again, that he feels savers' pain - but he can't do anything about it, short of creating a recession which would hurt everyone.

He did predict that inflation will rise again this month - October - but that will be the peak. It will be interesting to see whether that's another Bank forecast that gets quietly revised.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

So it's goodbye from me

After 11 years at the BBC, I'm leaving for a new role in the City.

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  • rate this

    Comment number 3.

    Actually I think everything Mr King said was absolutely correct.

    The bad news is that correcting global imbalances isn't going to happen in the near future as a result of political and economic changes. World leaders are too disorganised for that.

    The good news is that completely new technologies are on the way that will change things so much that politics+ economics will just follow

  • rate this

    Comment number 64.

    King has no independent voice.

    He says whatever his current political masters want him to say.

    Did he speak up, resign or otherwise when he was implementing Brown's disastrous economic policies ?

  • rate this

    Comment number 52.

    21. "put the whole £75bn in one of our nationalised banks, ring fenced it and told the bank "now lend that lot out to small and medium enterprising business" do you decide which bank? what about the shareholders? what about competition? and private enterprise? what about credit risk management? at what point do you get out - and how?

    you haven't thought this through have you...

  • rate this

    Comment number 56.

    The correct strategy is to export more.
    The DTI, needs to hire a professional sales team of approx 200 persons + assistants. Their sole job will be to sell the goods and services to countries which have a trade surplus with the UK. They need to aid and assist the top 3,000 companies of the UK to export. It must be a Sales Team and it must sell with targets of 4% UK GDP.

  • rate this

    Comment number 57.

    Steph', I am afraid you and your fellow journalists are misleading Joe Public. Whos creating this credit? Is it the BoE or is it banks who are then lending it to the govt at interest?

    Banks charge the taxpayer the privelige of creating money plus they keep the money to shore up their balance sheets, charge int to cust and sme's post phantom profits and siphon off billions for bonuses in Jan 12


Comments 5 of 144



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