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The King's Speech-- Merged thread

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Mervyn King speaking at the Civic Centre, Newcastle tonight.


Monetary policy cannot be based on wishful thinking. So, unpleasant though it is, the Monetary Policy

Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in

the form of higher prices and half in earnings rising at a rate lower than normal.

I sympathise completely with savers and those who behaved prudently who now find themselves among the

biggest losers from this crisis. But a return to economic stability from our fragile condition will require careful

and well-judged steps looking beyond the next few months.

I do not believe we are about to return to the days before independent central banks ushered in a period of

price stability. The Bank of England cannot prevent the squeeze on real take-home pay that so many

families are now beginning to realise is the legacy of the banking crisis and the need to rebalance our

economy. But we can determine our own inflation rate in the long run, whatever happens in the rest of the


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Presumably he means a pay squeeze for the great unwashed, the ordinary people of this country, not for bankers and top businessmen.

Stole my thunder, I was going to ask if this was for him and his mates or for us plebs?

Let me guess.....

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So what he's really meaning is:

I sympathise completely with savers and those who have been prudent during the financial crisis. But screw them.


"Sorry guys, but you're taking one for the BTLers Speculators Chancers Team"

Would be the plain talking translation.

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He wants households to have wage restraints while our "struggling" snow bound retailers are doing this type of thing?:


Executive directors

S A Wolfson 2010 1,737,000 2009 831,000 +109%

C E Angelides 2010 980,000 2009 585,000 +67%

D W Keens 2010 936,000 2009 560,000 +67%

A J Varley 2010 789,000 2009 423,000 +86%


Does that look like they are charging too much, i.e. using inflation talk to create inflation, to fund remuneration excesses?


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If price inflation is what we are targeting why does he list pages of reasons why it's rising and then say "but these are all external factors"?

Well of course our prices are effected by external factors.. what a stupid point! I didn't realise the remit was CPI excluding external factors. If it is then what about the negative external effects of Chinese tat for the past 10 years.. how come we didn't adjust UP for those?

But there is a misapprehension in some quarters that the MPC could

have prevented the squeeze in living standards by raising interest rates over the past year to bring inflation

below its present level. That view is a misunderstanding of how monetary policy works. Monetary policy

cannot change the amount that we in the UK have to pay to buy food and other commodities, such as

energy, from the rest of the world. Nor can it alter the need for a fall in the prices of the products that we sell

to the rest of the world relative to world prices in order to reduce our trade deficit and rebalance the UK

economy. Nor can it alter the burden of reducing our large budget deficit. Monetary policy can affect the

inflation rate at which these adjustments take place, but it cannot alter the fact that, one way or another, the

squeeze in living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing

of the world and UK economies.

If the MPC had raised Bank Rate significantly, inflation might well have started to fall back this year, but only

because the recovery would have been slower, unemployment higher and average earnings rising even

more slowly than now.

Is it me or is that a direct contradiction?

Either way, why don't they just admit they are really following Monetary inflation which they allowed to let rip during the boom, and now it's just tipped back into YoY negative they are shitting themselves (Linky).

Edited by libspero
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Mervyn King says pay squeeze necessary

Bank of England Governor Mervyn King Mr King said UK pay was suffering its longest squeeze since the 1920s

Continue reading the main story

UK Economy: The Recovery

* Economy tracker: unemployment mapped

* Shock contraction in UK economy

* CBI boss: Coalition lacks vision

* Q&A: What is inflation?

Mervyn King has said that the squeeze on UK take-home pay is necessary.

Speaking in Newcastle, the Bank of England governor said the current high inflation rate was necessary as the UK economy adjusts to higher commodity prices and becomes more competitive.

He said inflation was likely to rise further to 4-5% in the coming months, before falling back sharply from 2012.

And he implied that the Bank would thwart attempts by wage-setters to keep up with the above-target price rises.

"Further rises in world commodity and energy prices cannot be ruled out," he said in his speech.

"Attempts to resist their implications for real take-home pay by pushing up wages would require a response [from the Bank's monetary policy committee]."

Despite this warning, his speech - which came in the wake of a surprise 0.5% contraction in the UK economy in the last three months of 2010 - appeared to downplay the chances of the Bank raising interest rates any time soon.

Commodity prices

His speech will make bleak reading for UK households.

Mr King noted that they have been hit not only by rising prices and lagging wages, but also by high existing debt levels, high interest rates from banks, and often an inability to borrow at all.

Continue reading the main story

“Start Quote

Even abstracting from the effects of snow, growth at home slowed in the second half of last year”

End Quote Mervyn King Bank of England governor

He blamed the high inflation rate - which rose to 3.7% in December, well above the Bank's 2% target - on three factors:

* higher import prices thanks to the weak pound, which is needed to make the UK economy more competitive

* rising energy prices and other commodity prices, such as cotton, food and metals, driven by growing demand from the developing world

* rises in VAT, as the government begins to stabilise its finances

He considered all of these factors necessary as part of the UK economy's rebalancing away from domestic spending towards more exports - a process he claimed was already well underway.

Hard times

In total, Mr King estimated that these factors were contributing the equivalent of three percentage points to the inflation rate each year for four years.

Ignoring these external and temporary factors, UK domestically-driven inflation was virtually zero during the same period.

Indeed, the Bank governor noted that stagnant UK wages coupled with high inflation had led to the longest decline in the real value of take-home pay in the UK since the 1920s.

Nonetheless, Mr King claimed that hard times for UK wage-earners were, one way or another, inevitable.

If the Bank had tried to counteract the rising prices by raising interest rates, he said it would simply have led to falling wages - and therefore the same loss in purchasing power - but at the expense of an even deeper recession.

"Monetary policy can affect the inflation rate at which these adjustments take place," he said.

"But it cannot alter the fact that, one way or another, the squeeze in living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies."

Chill winds

Referring to the recent disappointing UK growth data, the Bank governor appeared to disagree with the government's analysis.

He said the data bore out his earlier prediction that the recovery would be "choppy".

"Even abstracting from the effects of snow, growth at home slowed in the second half of last year," he said.

The comments contrast with the line taken by the government that the weak output figures were due to the poor weather in November and December.

"These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December," said the Chancellor, George Osborne.

Mr King added that spending in the UK will continue to face "headwinds", as the pay squeeze is set to continue, households and banks are still struggling with their debts, and government austerity is on the way.

As such, the economy would be dependent on a rebound in exports to drive the recovery.

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Of course, it is possible to argue that the current recession should have been even deeper in order to keep

inflation closer to the target. But that proposition is one few commentators seem willing to embrace, nor is it

consistent with the remit given to the MPC which states that “the actual inflation rate will on occasions depart

from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in

these circumstances may cause undesirable volatility in output”. The MPC has stuck to its remit.


"the remit given to the MPC which states that “the actual inflation rate will on occasions depart

from its target as a result of shocks and disturbances."

"On occasions" maybe but come on NOT above target for years on end like it has been.

MPC = Mendacious Pretence Committee.

Edited by billybong
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