New BoE boss gives warning on growth

Published on Tuesday 1 July 2003 01:00

MERVYN King today stepped into Sir Eddie George’s shoes as the new governor of the Bank of England and immediately said the institution had its work cut out against a backdrop of slowing growth in consumer spending.

He has also pledged to change the Bank’s management style.

Increasing public spending and the need to reduce Britain’s trade deficit posed "potential challenges", he added.

Mr King said that when household spending was growing at four per cent a year the public generally feels that "things are going rather well".

"And when you have to do it against a backdrop where consumer spending, even though growing, is growing at a much slower rate, it’s a harder job and we will have to redouble our efforts to make the case for stability," he added.

The new governor said he planned to tour the UK regions on a regular basis to reinforce that case.

Mr King said: "There is no doubt that we have seen weaker growth than expected. I think we would expect to see a recovery during the course of this year and a noticeable recovery but we are not sure."

He also said he thought "the switch in resources from private consumption to public consumption" was an example of a potential hurdle that lay ahead.

"Households will have to accept that part of the output they are producing is going to finance public expenditure and to reduce the trade deficit rather than going to household consumption," he continued.

Mr King was named as Sir Eddie’s successor last November, having been one of the BoE’s two deputy governors prior to his appointment. Sir Eddie, or "Steady Eddie" as he was better know in the press, headed the Bank for ten years.

Among his achievements, the 64-year-old oversaw the institution’s move to independence, which was instigated by the Labour government following its 1997 general election victory.

The party had pledged to clean up the financial services sector and one of Gordon Brown’s first moves as Chancellor was to surrender the Bank’s supervisory powers to an independent body - City watchdog the Financial Services Authority.

The Bank was also given control of setting UK interest rates through its nine-strong Monetary Policy Committee. Mr King will oversee his first rates decision as governor next week when the committee meets on July 9 and 10.