King says living standards may never recover from the crisis

Bank of England Governor strikes dovish note on timing of interest-rate increase

The Governor of the Bank of England warned yesterday that living standards may never recover from the financial crisis and that households were only just starting to feel the full impact of bankers' mistakes.

Mervyn King told MPs that ordinary people were not to blame for the pain ahead and that he was surprised there had not been more public fury.

"It is not like an ordinary recession where you lose output and get it back quickly," the Governor said when asked if the country would ever recover from a squeeze on living standards on a scale not seen since the 1920s.

"You may not get it back for many years, if ever, and that is a big long-run loss of living standards for all people in this country."

Mr King said that unlike previous recessions, the economy had not needed a shake-up to get industries out of state control or weaken union power and that the people bearing the most pain are blameless.

"They can't look at this and say, 'Okay, something was wrong that has to be put right' and they don't get bonuses on the scale of people in the financial services sector," he told the House of Commons Treasury Committee.

"The cost of this crisis is only now being felt. I'm surprised that thedegree of anger hasn't been greater."

Mr King said the cost to ordinary people was one reason why the Bank would take a hard line with banks and let troubled lenders fail when regulation is transferred to it from the Financial Services Authority.

Mr King said the FSA had spent too much time listening to banks' views and getting bogged down in detail.Instead, he said, the role of a regulator should be to clamp down on riskyactivity and make sure that if a bank gets itself into trouble it can go bust without the taxpayer, savers or other banks paying the price. "It will change the face of banking supervision for the next quarter of a century," he said.

MPs also grilled the Governor on the Bank's inflation record after prices rose at double the 2 per cent target rate in January. Rate-setters split four ways last month on monetary policy.

The Governor rejected criticism of the Bank's interest-rate forecasts and rejected calls for a rate rise to ward off wage increases – arguments made by the Monetary Policy Committee hardliner Andrew Sentance.

Mr King said rising oil and commodity prices were the main causes of surging prices and that all MPC members believed the effects would drop out of the figures. Divisions were over how quickly this would happen, he added.

The bank's inflation forecasts stand up well but by definition "the chance of our central projection taking place is close to zero", Mr King said.

He added that raising rates to send a signal to workers and employers would be "self-defeating" because the Bank had already said the risks ofundershooting and exceeding the medium-term inflation target were equal. It was up to people to make their own judgements, he said.

Mr King said the economy appeared to have picked up in the early part of this year after a shock 0.6 per cent contraction in the final quarter of 2010. But he warned that with big spending cuts and rising unemployment ahead therecovery would remain "choppy".

He added that there were few signs that short-term price increases were feeding into increased wage demands that would entrench inflation.

The Governor insisted he had made no agreement with the Chancellor to hold rates at their record low to support the economy while the Government cuts spending. He admitted taxes could have been increased "for people like me" to soften the cuts but that the decision was for politicians.

Howard Archer, economist at IHS Global Insight, said: "Mervyn King continues to give the impression that he is very wary about raising interest rates in the near term, at least. The one certainty remains that interest rates will rise, be it sooner or later."

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Sport
Gabriel Agbonlahor, Alexis Sanchez, Alan Pardew and Graziano Pelle
footballAfter QPR draw, follow Villa vs Arsenal, Newcastle vs Hull and Swansea vs Southampton
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... with this review
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
New Articles
i100
Arts and Entertainment
musicHow female vocalists are now writing their own hits
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam