Tags: king | bank | stimulus | england

King: UK Needs Stimulus as World Economy Rebalancing Fails

Tuesday, 18 Oct 2011 03:17 PM

Bank of England Governor Mervyn King said a second round of U.K. stimulus was needed to prevent growth from stalling, as he called on other nations to play their part in stabilizing the world economy.

“The main impediment to the strategy of rebalancing our economy is markedly slower growth in our major export markets, especially in the rest of Europe,” King said in prepared remarks for a speech today in Liverpool, England. “Without monetary stimulus -- low interest rates and large asset purchases -- there is a risk that growth will stall and inflation fall below our symmetric 2 percent target.”

King said monetary policy is limited in its capacity to revive the U.K.’s “reluctant recovery” as governments delay dealing with excessive deficits and weak banks, undermining confidence. As leaders from the Group of 20 nations prepare for a meeting on Nov. 3, King said “time is running out” to deal with global imbalances and the buildup of sovereign debt.

“Without a rebalancing of spending in the world economy, a struggle between debtor and creditor countries will inflict economic pain on everyone,” King said. “We must use the gravity of the global crisis to provoke a bold response.”

As the euro-area debt crisis roiled financial markets, the Bank of England raised the ceiling for so-called quantitative easing to 275 billion pounds ($430 billion) from 200 billion pounds on Oct. 6. King justified the expansion today by arguing that while inflation accelerated to 5.2 percent in September, it will slow “sharply” next year as the impact from oil prices and a sales-tax increase fade.

Appropriate Stimulus

“For the time being, a significant degree of policy stimulus is appropriate to support demand,” King said. “In contrast to headline inflation, domestically generated inflation remains subdued.”

While the central bank’s buying of government bonds will benefit all companies, King said the Bank of England and the U.K. Treasury are examining measures aimed at boosting credit to small and medium-sized businesses.

He also said that while coordinating international action during the recession was “easy” due to the seriousness of the problems, it has been “much harder to form a consensus on how to tackle the underlying problems.”

Group of 20 finance ministers and central banks have set an Oct. 23 summit of European leaders in Brussels as the deadline to agree on a plan to avoid a Greek default, bolster banks and curb contagion. G-20 leaders will meet in Cannes, France, on Nov. 3-4.

Turmoil

King said some governments in Asia and the euro area “significantly” contributed to the problems in the global economy over the last two decades by trying to fix exchange rates “without putting in place mechanisms to ensure that competitiveness could be rebalanced by other means.”

“Surplus countries, a group which includes three of the world’s largest four economies, share a major responsibility to respond to our present dilemma,” King said. “Domestic spending must be raised in the surplus countries and lowered in the deficit countries, relative to current trends.”

King said officials should aim at returning interest rates to normal and lowering budget deficits, though turmoil in Europe and slower global growth will delay the process. While stimulus measures after the collapse of Lehman Brothers Holdings Inc. in 2008 “bought time,” lenders in Europe remain inadequately capitalized and governments must do more to tackle underlying “debt problem,” he said.

“There have been renewed concerns about the adequacy of the capital of banks in the euro area to absorb likely future losses, thus jeopardising their ability to raise funds,” King said. “A transparent recognition of losses and a substantial injection of additional capital are necessary.”

“There is a long journey ahead before the world economy returns to a sustainable equilibrium,” he said.

© Copyright 2017 Bloomberg News. All rights reserved.

 
1Like our page
2Share
StreetTalk
Bank of England Governor Mervyn King said a second round of U.K. stimulus was needed to prevent growth from stalling, as he called on other nations to play their part in stabilizing the world economy. The main impediment to the strategy of rebalancing our economy is...
king,bank,stimulus,england
621
2011-17-18
Tuesday, 18 Oct 2011 03:17 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved