Comment: Mervyn King’s downbeat assessment hard to contradict

By MARTIN FLANAGAN
Published on 27/06/2012 00:00

SIR Mervyn King, Governor of the Bank of England, was not in a mood to add to the gaiety of nations at the Treasury select committee yesterday.

Along with a few other members of the BoE’s monetary policy committee, the Governor was giving his take on the economic challenges we face. And cheery it wasn’t.

With perplexed laymen looking forlornly to our economic experts for signs of a light at the end of the euro tunnel, King wasn’t playing ball.

He had “no idea what is going to happen in the euro area,” he said.

And, in case we weren’t getting the depressing message, along with repeated warnings about the deep crisis that nations around the globe are struggling with, Britain’s top central banker said that he doesn’t think we are even halfway through the economic and financial struggles.

I’ve mentioned here before that, as our troubles have deepened, we have not needed to decipher white smoke emanating from Threadneedle Street. The central bank’s language has become more straightforward, at times stark.

Similarly, yesterday it looked clearer than ever from his evidence to MPs that King favours more quantitative easing – asset purchases – over any further cutting of interest rates from their current historic lows of 0.5 per cent.

This seems about right. There is much doubt about whether a further quarter point or so off base rates would have any effect in stimulating Britain’s faltering economy.

The lever is there, but recall the stagnation that engulfed Japan in the Nineties when its interest rates were virtually at zero for a long time. It didn’t prevent a lost decade.

Similarly, King & Co were not making any great claims to MPs for the new Funding for Lending scheme that the BoE and the Treasury are working on to try and encourage banks to lend more to get the economy moving again.

King is empirically backed by the banking evidence that you can lead a horse to water but can’t make it drink. Just recall the mixed experience with Project Merlin and business lending.

All this was before the MPs heard the increasingly Eeyorish Governor say that a lack of business confidence to invest now, repeatedly kicking the can of corporate decision-making down the road, could lead to a self-fulfilling downturn.

King’s remarks were both reasonable and dispiriting.

This is a depressing theme, perhaps inevitable given the dire macro circumstances, that he has reprised regularly in recent years. But if he ever gives up the day job, he may do well to stay away from the comic circuit.

Murdoch’s move will protect crown jewels

RUPERT Murdoch is considering the break-up of his global media empire, clearly to minimise any reputational and commercial damage from the newspaper phone hacking scandal spilling over into his entertainment operations.

Such a move, if the News Corp boss decides to go ahead, would create a PR firewall around his prized television and film assets which are spread around the world.

These are the hugely successful, untainted parts of the Murdoch empire that might gain a new lease of stock market life by being spun off into a separate entity. They already account for 90 per cent of group profits.

Farther down the line it might also be the stepping stone to selling off the News International titles in Britain: the Times, Sunday Times and the Sun.

Following son James’s resignation from the helm of News International, in the wake of the hacking controversy and his handling of the investigation into it, there is already no direct Murdoch family managerial link with the titles.

Demerger of the two parts of News Corp, with the HarperCollins book publishing arm being included with the newspapers, would be the most visible cordon sanitaire between well-performing assets and businesses that are obviously under a cloud.

What I don’t buy is the suggestion by some that such a demerger would also possibly pave the way for a renewed takeover bid by News Corp for the 61 per cent of Sky it does not own.

After all that has gone before, Leveson inquiry and the rest, and the intense embarrassment of politicians about their links with Murdoch, a renewed Sky assault by News Corp is a non-runner.