King seeks deficit action in spring Budget
Bank of England governor Mervyn King has placed further pressure on the government to cut the public deficit, warning No 11 that “markets can be unforgiving”.
Mr King acknowledged in his speech to the University of Exeter that a “perfectly sensible debate” existed about the timing of when to reduce Britain’s structural deficit, the main consequence of Alistair Darling’s 2008 Pre-Budget Report, as part of the current “temporary fiscal stimulus”.
In an appeal to the chancellor to announce action in the pre-election Budget, Mr King cited Federal Reserve Ben Bernanke’s comments that “neither financial stability nor healthy economic growth” will be achieved if fiscal imbalances are not quickly addressed.
“The chancellor has made clear that the spring Budget provides the opportunity to do precisely that,” Mr King noted.
His predictions about the pace of the economic recovery remained uncertain, especially given the increased question-marks over much of the data emerging at present.
Figures released yesterday showed December’s consumer price index inflation jumped to 2.9 per cent from November’s 1.9 per cent, the biggest monthly leap since records began.
“Ten years ago, I described how movements in macroeconomic data can sometimes bear a ‘resemblance to old-fashioned disco dancing – sharp movements in unpredictable directions creating much excitement, accompanied by a good deal of noise’,” Mr King added.
“Over the next few months, the data are likely to be dancing particularly vigorously under the influence of the reversal of the VAT cut, a turnaround in the stock cycle and even the effects of the recent cold weather.”
