King takes a stance on public borrowing
As most people are only too aware the public purse has taken a real bashing over the past year, with the government using taxpayers’ money for all sorts of measures in order to try and stabilise the financial system and improve the economy.
However, it appears that the Governor of the Bank of England, Mervyn King, is not too happy about the way things are going, and has recently spoken out about his concerns stating that the government needs to show ‘greater ambition’ in reducing public borrowing.
The governor said that although the budget had included plans relating to clearing the deficit the details were not clear enough. He also expressed his doubts about the economy making as quick a recovery as many have hoped and predicted. King was addressing the Treasury Committee recently when he spoke about these concerns. He told the committee that the speed of recovery would partly depend on how quickly public deficit could be cleared.
He told committee members: “The scale of the deficit is truly extraordinary. 12.5% of GDP is not something that anybody would have anticipated even a year or two ago, and this reflects the scale of the global downturn. But it also reflects the fact that we came into this crisis with fiscal policy itself on a path that wasn’t itself sustainable and a correction was needed. ”
He added: “There will certainly need to be a plan for the lifetime of the next parliament, contingent on the state of the economy, to show how those deficits will be brought down if the economy recovers to reach levels of deficits below those which were shown in the Budget figures.”
He also said that he was very concerned about how long economic recovery in the UK might take, stating: “There are genuine concerns about how quickly the recovery will pick up. Looking at the clear evidence, [businesses] are finding it hard to access credit from the banking system. A combination of that and real uncertainty over the global economy makes it very difficult to be confident of a rapid recovery.”
He also spoke about the powers of the Bank of England, which he said were limited, adding: “We were given a statutory responsibility for financial stability in the Banking Act. The question I put to you in February, and to which I’ve not really received any adequate answer from anywhere, is what exactly it is that people expect the Bank of England to do? All we can do at present, before a bank is deemed by the FSA to have failed, is to write our Financial Stability Report and give speeches. If you’re content with that, that’s fine by me. What you can’t do is turn around afterwards and say ‘You have the statutory responsibility, why didn’t you do something?’ when there is nothing we can actually do.”
In the meantime the Conservative Party has stated that if it comes into power in the next general election it will be looking at granting greater powers to the central bank, which is something that Mervyn King has been calling for for some time.
Tags: general election, global downturn, Deficit, recession, financial, report, Conservative Party, public borrowing