Wednesday, July 28, 2010

King: Still a Long Ways to Go for the U.K. To Return to Normal

Mervyn King, Bank of England's Governor, says there may be a considerable way to go before U.K.'s rates return to normal.

“There will come a point when we will certainly need to ease off the
accelerator and return Bank Rate to more normal levels,”

“I look forward to that time because it will probably be a signal that
there is a smoother drive ahead, with the economic outlook improving in a
durable way. But I fear there is some considerable distance to travel before we
can begin to use the word ‘normal.’”

According to the Bloomberg report, Bank of England's policy makers are "starting to split on monetary policy as an economic recovery stokes concerns about inflation pressures. Andrew Sentance argues it’s time to raise the benchmark rate from a record low of 0.5 percent, David Miles says the central bank should be prepared to step up its bond "to safeguard growth if necessary". “Recent events in sovereign debt markets and in bank funding highlight the downside risks,” “Further asset purchases may be warranted at some point in the future.”

The Bank of England also said that that slack in the economy will keep a lid on prices.

King added: “And the wider economic problems around the world underline the fact that we cannot be confident that the recovery in demand, output and employment here in the U.K. will be sustained.”

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