Wednesday, May 12, 2010
King unleashed
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

Rarely has an inflation report press conference been so dominated by fiscal policy as this one. The new government asked Mervyn King, the Bank of England's governor, for his view on its outline fiscal plans and he very much approved. He thinks an in-year fiscal tightening (6 billion of spending cuts) is needed, as is a more aggressive profile for cutting the budget deficit.

King. whose language on fiscal policy was always somewhat coded before the election, distanced himself from the suggestion that he believed the necessary fiscal measures would be so unpopular as to be politically suicidal. He said the need for urgent action and getting ahead of the markets had been underlined by the Greek and wider eurozone fiscal crisis. The inflation report itself had broadly the same message as three months ago - a temporary blip in inflation that will reverse itself as spare capacity bears down. The inflation report is here, and the key charts are reproduced below.

Meanwhile, there was mixed news in the latest labour market statistics, with the claimant count down 27,100 in April to 1.52m but the wider Labour Force Survey measure up by 53,000 in the January-March period to 2.51 million, 8% of the workforce, and employment down by 76,000 to 28.83 million, 72% of the workforce, the lowest since 1996. Though they won't be reported this way, these figures are consistent with an improving labour market, as we will see when February drops out of the LFS numbers. More here.

Those charts: