In the speech delivered last night, King employed what he called “biblical language” to describe the fate of the global economy, saying that “failure to tackle the imbalances during the seven years of plenty before 2007 threatens seven lean years thereafter for at least part of the world economy”.
The governor, awarded a knighthood in the Queen’s birthday honours list last weekend, acknowledged that the rebalancing of the UK’s own economy from private and public consumption to net exports and business investment would take “several years to complete”.
The uncertainty of both that rebalancing and the impact of today’s CPI rates on tomorrow’s domestically generated inflation means, however, that “it is simply impossible to know now at what point monetary tightening will begin”, King said.
On banking, the governor highlighted his concern that the European Commission may propose a weakening of Basel standards on common equity as a form of loss-absorbing capital, and said he was awaiting with interest the final report from the Independent Commission on Banking.
Relating such issues to regulation, King said that the belief that compromising on capital requirements and leverage limits in favour of other areas was the aspect of financial regulation that “is most deserving of the adjective “tragic””.
Returning to interest rates, he suggested that the spreads between the base rate and rates charged to borrowers would have to come down before any rate rise could be considered.
“The rate at which that takes place will have an important influence on the speed at which the bank rate will rise”, he advised.
