Source: BBC TV News
Date: 13/02/2013
Event: Sir Mervyn King: British government's green policies have helped push up prices
Attribution: BBC TV News

  • Stephanie Flanders:  BBC Economics Editor
  • Sir Mervyn King:  Governor of the Bank of England
  • Sophie Raworth: English newsreader and journalist
  • Ross Walker: UK economist, RBS

Sophie Raworth: A recovery is in sight for the UK economy, according to the Governor of the Bank of England. But Sir Mervyn King has warned that it will be weak in the short term and inflation will remain stubbornly high for the next two years. Here's our Economics Editor, Stephanie Flanders.

Stephanie Flanders: The Bank of England was celebrating a birthday today, the 20th anniversary of its Inflation Report. Sir Mervyn King has presented all 81 of the Bank's quarterly economic reports, since 1993. And today he tried to offer some good news.

Sir Mervyn King: The UK economy is therefore set for a recovery. That isn't to say that the road ahead will be smooth. This hasn't been a normal recession and it won't be a normal recovery. 

Stephanie Flanders: The Bank's new forecasts do show the economy growing this year, though not quite as fast as they were hoping, back in November. And once again, the forecast for inflation is quite a lot higher. Inflation's at 2.7% now - it's been well above target for the best part of seven years. And back in November, the Bank's best guess was that it would fall back to 2% by the beginning of next year. It now thinks it will rise again over the next few months and still be around 3% in a year's time.

There are different things pushing up inflation, but the Governor said quite a few - like the rise in tuition fees - were the result of government policies.

Sir Mervyn King [talking at a press conference]: Whether it's on the finance of education or green policies or other policies, what they've done is to push up prices. And that clearly makes our job - in the short run - more difficult. 

Stephanie Flanders: But do you think that's the sort of thing they should have borne in mind, in thinking about the measures? 

Sir Mervyn King: I hope they did, but it's up to them to decide it. It's - we will have to deal with the consequences, and all I said is that we'll have to look through some of these price increases.

Stephanie Flanders: Looking through higher inflation means ignoring it. Anyone hoping for an early rise in interest rates will be disappointed. And growth? long term, Sir Mervyn said the government should be doing all it could to boost Britain's potential. But he didn't see much scope for a short-term boost, from the Chancellor or the Bank.

Ross Walker: I think there is some frustration at the Bank of England. They have, in many ways, thrown the kitchen sink at this economy, in terms of monetary policy response, yet the real economy has been, broadly, flat for four years. So something other than interest rate cuts or printing more money needs to be done, to spur a recovery.

Stephanie Flanders: The Bank will reach another milestone in July, when Mark Carney becomes Governor. He may want to strike a different tone, but if these new forecasts are right, his first order of business will be rather familiar - explaining to the Chancellor why inflation's gone over 3% yet again. Stephanie Flanders, BBC News.