New Bank of England chief will face slow recovery: King

Tue Nov 27, 2012 7:39am EST
 
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By Olesya Dmitracova and David Milliken

LONDON (Reuters) - The Bank of England's outgoing governor Mervyn King underlined on Tuesday the uphill task his successor faces, saying the bank might have to buy even more government bonds to help drag Britain's economy back to health.

Finance minister George Osborne delivered a shock on Monday by appointing Canada's central bank head Mark Carney to be the first non-Briton to head the BoE, just over a week before he lays out the government's latest budget plans.

The euro zone debt crisis, high inflation and fiscal austerity have weighed heavily on economic recovery, which in turn has undermined the Conservative-led government's efforts to pay off the costs of the 2008 financial crisis.

While official numbers on Tuesday confirmed the UK economy grew 1 percent in the third quarter, King said his regime at the central bank should probably have made clear earlier that a substantial recovery would not come in 2013 and 2014.

"It may be unreasonable to expect anything other than a slow and protracted recovery, absent a further fall in the real exchange rate," King told a parliamentary committee.

"In such an environment, there are limits to the ability of domestic policy to stimulate private sector demand as the economy adjusts to a new equilibrium," he said.

"In the event that further easing is required, I believe it appropriate to continue with our policy of purchasing gilts."

Paul Fisher, a BoE policymaker speaking alongside King, said Britain's economy may well need more monetary easing next year.   Continued...

 
Bank of Canada Governor Mark Carney takes part in a news conference in Ottawa November 26, 2012. REUTERS/Chris Wattie