Growth forecasts should have been cut sooner, admits King

Bank of England governor Sir Mervyn King today admitted policymakers should have cut growth forecasts sooner.

Discussing the Bank's latest quarterly inflation report, the governor told MPs the Bank had "inadvertently given too much weight" to optimistic growth forecasts.

Sir Mervyn said there was little chance of rapid growth in 2013 or 2014, adding it "may be unreasonable to expect anything other than a slow and protracted recovery".

In an apparent endorsement of the decision to appoint Bank of Canada governor Mark Carney as his successor, he told the Treasury Select Committee he was "completely confident" the central bank would be left in "very good hands".

The Bank warned in its inflation report earlier this month that economic growth would remain below pre-financial crisis levels for at least the next three years.

Taking the shine off a recent return to growth between July and September, Sir Mervyn said output could shrink again in the final three months of the year.

And the governor braced households for an "unappealing combination" of sluggish growth and above-target inflation.

The Bank downgraded its growth forecast for next year to around 1% and warned that output will remain below its historical average until mid-2015.

In a grilling by committee chairman Andrew Tyrie, Sir Mervyn said forecasts should have been lowered earlier.

"There are times when you debate something and we finally decided our judgment has to change," he said.

Sir Mervyn also admitted the impact of the Bank's quantitative easing programme - injecting emergency money into the economy - becomes less effective the longer it is used.

He added the UK is "reaching the point where it is difficult for conventional monetary policy measures, including asset purchases, to bring spending forward from the future".

The Bank has injected £375 billion into the economy, which Sir Mervyn said had staved off the risk of a much deeper collapse in output in the UK.

PA