Mervyn King unfurled a mast of metaphors this morning. ‘We are
navigating through turbulent waters, with the risk of a storm heading our way from the continent,’ he said. ‘We don't know when the storm clouds will move away.’ The eurozone, he
said, is ‘tearing itself apart’.
So poetic was his language — a rare gift in a central banker — that it almost made one forget the painfully prosaic nature of his facts and figures. Inflation, already at target-busting
levels, will be much stronger than the Bank initially envisaged, remaining above 2.5 per cent for the rest of the year. That’s almost a whole percentage point higher than its February
forecast. The Bank also slashed its growth forecast to 0.8 per cent for 2012 and 2 per cent for 2013, from 1.2 per cent and 3 per cent respectively.
Even then, economists say these new GDP predictions may be too optimistic, and they predict another bout of Quantitative Easing
as the central bank tries yet
again to kick-start the economy (never mind that it hasn’t seemed to work so far). But QE, as everyone knows, is likely to push inflation even higher, so we are caught in a vicious cycle, a
whirlpool, a terrible economic maelstrom — especially with the eurozone likely to unravel and unleash the mother of all typhoons. The government says the UK economy may only get back on its
feet around 2014, and that again is probably a sunny assessment.
Coffee House has often taken King to task, especially for QE, a policy that has raised prices and eaten into the value of pensions without resuscitating the economy. But it’s difficult, with
all that’s happening across the Continent, not to feel every so slightly sympathetic towards Merv. It’s true — if the eurozone breaks up, all bets are off. So big will be the
financial tsunami — the earthquake, the hurricane — that whatever a single national central bank can or cannot do might pale in comparison.
The governor of the Bank of England is — how shall we put it? — between a rock and a hard place.