Sky News business editor Michael Wilson

You’ll be pleased to know that our current travails are "a one year pause" rather than a slump, slowdown or whatever else describes your current situation. That’s how the Governor of the Bank of England described our present hard times to his inquisitors from the Treasury Select Committee.

Pressed on the only question we really care about, he said “as recently as May, markets seemed to be pricing in two, three cuts in interest rates over the few months and then it suddenly swung round in a month to expecting two, three rises in interest rates. That seemed to me a rather sharp reaction to data. I think ours has been a more balanced response.”

He added “I am confident that we will bring inflation back to the target, but I cannot tell you what level of interest rates we will need to achieve that.”

So this is going to be the message for the next few months. Mervyn King hardened up his inflation message last week, both in his official letter to the Chancellor and in his Mansion House speech, and today he repeated the rate would rise above 4% by the end of the year.

But how confident can we be, though on the "one year pause", especially with today’s warning from OPEC’s president that the oil price could reach $170 a barrel?

“There is no magic bullet”, he said. I think we know that. I’m afraid we are in this strange territory of hope. Hope that there will be a controlled landing for the slowdown and an orderly decrease in prices. Dr King must know that the economy as it stands, or rather staggers, could not stand the hair shirt of interest rate rises. He also knows that the market is almost doing his job. As banks are repairing their balance sheets and inter-bank interest rates are so high; and as mortgage lending is getting increasingly expensive for borrowers, the economy is running on very tight margins. 

That might just engineer a slowdown that doesn’t stall us all. Let’s hope so.

Comments

[Derek, Plymouth 27 Jun 2008 19:46:04]

Get rid of all credit and store cards(DEBT CARDS) the greedy companies that own the credit cards can whistle for their money and go bust and the country will become solvent once more far quicker than you think. It's these companies that have encouraged the people of this country to live far beyond their means and get us into this situation in the first place.

[michael Wilson 26 Jun 2008 19:55:28]

tony..khalid..of course, we've been trying to stress the full effects of inflation..obviously not the official measure - obviously short of reality..but we'll keep a watch on that.
regards
michael

[tony, london 26 Jun 2008 16:17:24]

So inflation will return to 2% will it. So he has already agreed how CPI will be tweaked to make it an even more useless measure of the cost of living than it already is!

Inflation never was 2%. It's just the CPI that said 2%.

[Khalid 26 Jun 2008 15:22:49]

Sir
What I find most bizarre and unprecedented is the fact that these committees blame everyone but themselves thus far as 99.9% of market turmoil.
Utilities, Mortgage and other such matters of high interest are not the fault of Dr King but driven by many a committee leader.
Taking for example the cost of oil, is it not a fact that Dr King does not control the prices, but prices are exasperated by virtue of much committee interference?
Then bring on board gas, Water & Electric, and by virtue of the rhetoric that the utility giants put forward, when will the people of the UK see a committee with backbone and eradicate the nonsense that surrounds the unfair nature of contracts for those that pay promptly by whatever means other than cash? Interest rates will unfortunately have to rise so as to curtail inflation, but only by .05% whilst we naturally wait the falling in price of oil which has been the bain of society. Yet I wouldn’t be surprised if the committee selected will [Put a Spell on you] and blame Dr King for the shortcomings of ethical and prudent government. Yet [Son-I-Que] to find out who they will blame for the council of many a tax!