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King warns against more spending King warns against more spending
(about 1 hour later)
Mervyn King, the governor of the Bank of England, has cautioned against further significant government spending to stimulate the economy.Mervyn King, the governor of the Bank of England, has cautioned against further significant government spending to stimulate the economy.
Given the high levels of UK debt as a result of recent stimulus packages, Mr King questioned the wisdom of increasing debt by spending more.Given the high levels of UK debt as a result of recent stimulus packages, Mr King questioned the wisdom of increasing debt by spending more.
He did, however, say that there was room for further "targeted and selected measures" in some areas of the economy.He did, however, say that there was room for further "targeted and selected measures" in some areas of the economy.
Mr King was answering questions from MPs at a Treasury committee.Mr King was answering questions from MPs at a Treasury committee.
His comments came as official figures showed a surprise rise in consumer price inflation.His comments came as official figures showed a surprise rise in consumer price inflation.
This increased to 3.2% in February, from 3% in January, led by the rising cost of imported goods.
'Higher deficits''Higher deficits'
Mr King said increasing levels of debt in the face of the economic downturn was the right course of action.Mr King said increasing levels of debt in the face of the economic downturn was the right course of action.
"I think it's right to accept that when the economy turns down and the automatic stabilisers kick in, so the increased benefit expenditures and lower tax revenues are bound to lead to higher fiscal deficits," he said."I think it's right to accept that when the economy turns down and the automatic stabilisers kick in, so the increased benefit expenditures and lower tax revenues are bound to lead to higher fiscal deficits," he said.
He is effectively saying that the government would be mad to consider another large stimulus package Stephanie Flanders, BBC economics editor Stephanie's blog in full Surprise hike in consumer prices He is effectively saying that the government would be mad to consider another large stimulus package Stephanie Flanders, BBC economics editor Stephanie's blog in full Surprise hike in consumer prices
"So we are going to have to accept, for the next two to three years, very large fiscal deficits.""So we are going to have to accept, for the next two to three years, very large fiscal deficits."
But the current high level of debt means the government needs to be careful about further spending, Mr King argued.But the current high level of debt means the government needs to be careful about further spending, Mr King argued.
"Given how big those deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits," he said."Given how big those deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits," he said.
"I think the fiscal position in the UK is not one where we could say, 'well, why don't we just engage in another significant round of fiscal expansion'.""I think the fiscal position in the UK is not one where we could say, 'well, why don't we just engage in another significant round of fiscal expansion'."
The BBC's economics editor Stephanie Flanders said the governor was "effectively saying that the government would be mad to consider another large stimulus package".The BBC's economics editor Stephanie Flanders said the governor was "effectively saying that the government would be mad to consider another large stimulus package".
The International Monetary Fund has said that the UK will have a deficit of 11% of GDP in 2010 compared with a G20 average of 6.3%.The International Monetary Fund has said that the UK will have a deficit of 11% of GDP in 2010 compared with a G20 average of 6.3%.
Mr King did, however, say that there was still room for further measures to stimulate the economy.Mr King did, however, say that there was still room for further measures to stimulate the economy.
"That's not to rule out targeted and selected measures that may find those areas, whether it's in the labour market or in corporate credit, that can do some good," he said."That's not to rule out targeted and selected measures that may find those areas, whether it's in the labour market or in corporate credit, that can do some good," he said.
'Heavily indebted''Heavily indebted'
Shadow chancellor George Osborne said the comments were a vindication of Conservative Party policies.Shadow chancellor George Osborne said the comments were a vindication of Conservative Party policies.
"The governor is sending a very clear warning that this country cannot borrow its way out of debt," he said."The governor is sending a very clear warning that this country cannot borrow its way out of debt," he said.
"We are already heavily indebted and plans for a second stimulus package, which Gordon Brown has been talking up, should not go ahead.""We are already heavily indebted and plans for a second stimulus package, which Gordon Brown has been talking up, should not go ahead."
Global effort
Prime Minister Gordon Brown is currently touring the world ahead of next week's G20 summit calling on governments to take decisive action to tackle the global economic downturn.Prime Minister Gordon Brown is currently touring the world ahead of next week's G20 summit calling on governments to take decisive action to tackle the global economic downturn.
"We are seeing the biggest cut in interest rates the world has ever seen and seeing implemented the biggest fiscal stimulus the world has ever agreed," Mr Brown told the European Parliament in Strasbourg."We are seeing the biggest cut in interest rates the world has ever seen and seeing implemented the biggest fiscal stimulus the world has ever agreed," Mr Brown told the European Parliament in Strasbourg.
'No rift'
Despite Mr King's warnings, there is no indication that the Treasury has plans for further significant spending in a stimulus package in the next budget.Despite Mr King's warnings, there is no indication that the Treasury has plans for further significant spending in a stimulus package in the next budget.
Chief Treasury Secretary Yvette Cooper said there was no rift between the government and the Bank of England over economic policy.Chief Treasury Secretary Yvette Cooper said there was no rift between the government and the Bank of England over economic policy.
"What [Mr King] said is we need to take a sensible approach, which we always do," she said."What [Mr King] said is we need to take a sensible approach, which we always do," she said.
"Further measures will take place, for example to help people get employment subsidies and training subsidies to help them get back to work."Further measures will take place, for example to help people get employment subsidies and training subsidies to help them get back to work.
"This has been supported not just by the Bank of England but by the CBI.""This has been supported not just by the Bank of England but by the CBI."
Mr Brown's official spokesman said that the bank "has supported the current action of fiscal stimulus".Mr Brown's official spokesman said that the bank "has supported the current action of fiscal stimulus".