King's 'excessively political' comments attacked by Posen

BANK of England governor Mervyn King has come under attack from a member of his own monetary policy committee for showing "excessively political" support for the coalition government's austerity plan.

• Mervyn King faced a grilling from MPs, who heard criticism of the governor from Adam Posen

Politicians on the Westminster Treasury select committee were astounded yesterday when Adam Posen, a US academic appointed to the MPC last year, levelled unprecedented criticism at King for over-stepping the boundaries of his position.

The rift is expected to heighten tensions between MPC members who are divided over how to safeguard the economic recovery.

Posen said at least two committee members thought comments made by the governor shortly after the general election in May - both in person and in that month's inflation report - were questionable.

"There was a difference of opinion at the MPC, in particular in the main meeting, over a particular paragraph in the report that was talking about the need for a particular speed with which to deal with the fiscal policy," Posen said.

"A number of the people on the committee, myself plus at least one other... were concerned that that statement could be seen as excessively political in the context of the election."

The attack by Posen forced King into a defence of his stance as he and a string of MPC members gave evidence to the Treasury select committee yesterday.

"The (May] inflation report appeared after the election and I commented as governor," King said.

"I have never spoken ever about the balance between spending and taxes, let alone about any of the individual measures.

"I have merely commented about the outlook for the UK economy of the largest peacetime deficit ever."

He was supported by the Bank's deputy governor, Paul Tucker, who told politicians: "You cannot operate monetary policy without a framework of underlying stability from government and parliament."

The speed and severity of austerity cuts was one of the principal battlegrounds of the general election on 6 May, with the Conservatives calling for sharp cuts while Labour planned a slower timetable of measures.

In the Bank's May inflation report, published less than a week after the election, comments were made about the need for "a significant fiscal consolidation" in the medium term, which would require a more "demanding path" than the one set out by Alistair Darling in the Labour government's final Budget in March.

At a press conference accompanying the report, King reiterated that it was "imperative that our own fiscal problems are dealt with sooner rather than later".

The MPC is currently split three ways on the best way forward for Britain's economy, with Posen arguing for an extension of the Bank's Quantitative Easing programme while arch hawk Andrew Sentance continues to press for interest rates to rise from their historic low of 0.5 per cent.