No rate rise until recovery is secured, promises King

In one of his most "doveish" interventions since the end of the recession, Sir Mervyn King, the Governor of the Bank of England, signalled yesterday that there would be no rise in interest rates until there was clearer evidence that the economy was growing and thatunemployment and the rates actually paid by consumers were falling.

Having apparently led the key group on the Monetary Policy Committee (MPC) which has voted to keep interest rates and quantitative easing on hold since the spring of 2009, the Governor placed himself firmly at the doveish end of that strand of opinion as he and other members of the MPC gave evidence to MPs on the Commons Treasury Select Committee.

Sir Mervyn stressed that a further round of quantitative easing (QE) – the direct injection of money into the economy to boost asset prices and spending – was an option.

"I regard QE as a perfectly conventional monetary policy tool. This is something we can do. I think it's of particular relevance when rates are low," he said, though he cautioned: "If we feel there is a threat to inflation caused by easing policy, then we won't do it".

The last set of MPC minutes, relating to the meeting earlier this month, revealed a shift in opinion towards the lonely stance taken by Adam Posen, an external appointment who has consistently argued for further stimulus.

Mr Posen himself again stressed the headwinds facing the economy yesterday: weak consumption, minimal pay rises and the failure of financial markets to signal a hardening in inflationary expectations. He told MPs that the MPC had made a "judgement call" that the present pace of inflation in commodity prices would not be sustained.

Sir Mervyn said: "We expect to see relatively weak consumer spending. The fall in house prices has come back a bit, activity is very weak. But the number of repossessions is way down from what we saw in the early 1990s."

David Miles, another externalappointee to the MPC, also stressed the "extremely fragile" condition of consumer confidence.

Weak consumer spending is preventing the economy from staging a sustained recovery, the Office for National Statistics's data suggested. Consumers were having to use savings to maintain their lifestyles, the ONS reported.