Bank of England Governor Mervyn King said the U.K. must press on with reforms to the banking industry and repeated his gloomy outlook for the euro-area debt crisis, which is impeding Britain’s economy.
“If the rest of the world were growing normally, the rebalancing and recovery of our economy would be much easier,” King wrote in an article in the Mail on Sunday newspaper. “But it isn’t. Even the rapidly expanding emerging-market economies are slowing, and the problems of the euro area continue with no obvious end in sight.”
King’s comments came days after the Bank of England cut its growth forecasts and said the outlook is “unusually uncertain.” A sports fan who attends the Wimbledon tennis tournament every year, he pointed to London’s Olympic Games and said achievements such as winning a gold medal take “years of hard work.” The same applies to the economy, he said.
Britain’s long-term economic performance will depend on measures such as “reforming our banking system so that banks focus less on making money in the short term, and more on building businesses to serve their customers,” King said.
“The government’s plans to build a wall between banks’ risky trading on one side, and their lending to businesses and families on the other, will help,” he said. “As will the injection of new competition into our banking system. And, as recent scandals have shown, banks could learn a thing or two about fair play from the Olympic movement.”
King is due to retire in June, and the Sunday Times reported yesterday that Chancellor of the Exchequer George Osborne will advertise for a successor after several candidates dropped out because of the Libor-rigging scandal. The remainder have been told that the post will be advertised in the fall and they should register official interest then, the newspaper said, citing an unidentified candidate.
Britain’s economy has contracted for the past three quarters, and King said in yesterday’s article that while the Olympics may boost confidence, they “cannot alter the underlying economic situation we face.”
“Unlike the Olympians who have thrilled us, our economy is not at full fitness right now,” King said. “But it is slowly healing. The conditions are in place for a recovery, and the Bank of England is, and will carry on, doing all we can to help bring it about.”
Policy maker Adam Posen, who will step down from the Bank of England at the end of the month, called on his colleagues to do more to revive growth. He said the central bank should end “anguished religious ethics” on the scope of its powers and use its bond-purchase program to buy private-sector assets.
“As long as the central bank isn’t monetizing government debt in the primary market” then “I don’t think it really matters that much what assets the central bank acts on,” he said in an interview with the Financial Times published today.
Prime Minister David Cameron linked the U.K.’s organization of the Olympic Games and the successes of the nation’s athletes over the past two weeks to efforts to revive the economy. Britain came third in the Olympic medals table behind China and the U.S.
“It’s a very tough economic world that we’re in,” he told the BBC yesterday. “I think in a way what these games show is that if you work hard enough at something, if you plan something, if you’re passionate enough about something, you can turn things around.”
The Bank of England increased its bond-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds last month in an expansion of stimulus that will run until November. It also introduced a program to boost credit, saying that a “major concern” for policy makers has been an increase in bank funding costs related to the euro-area turmoil.
“But if we have learnt anything from the past fortnight, it is that commitment and hard work over a long period are necessary for eventual success,” King said, referring to the Olympics. “Now is the time to start training for the economic marathon -- and to follow the example of Team GB.”
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org