Lord Mervyn King, the former head of the Bank of England, has claimed that the institution’s prolonged period of low interest rates was the cause of record high inflation in the country. Speaking ahead of next month’s Budget on BBC Radio Four’s Broadcasting House, King did acknowledge that inflation is now under control, but was critical of all central banks for their slow response at the outset. The peer added that interest rates are now within an acceptable range.
At its September meeting, the Bank of England chose to maintain the base rate (which determines mortgage rates, credit card rates and savings rates) at 5%. Its next meeting is due to happen in November. Discussing the Budget, King anticipated that there would be “a number of half measures” because the government is committed both to public sector investment and to spending limits. As such, he suggested they might opt to tweak these restrictions.
King’s comments were not solely reserved for the Bank of England and the government. He also found fault with the previous Labour government’s national insurance cut and said Labour should reverse it. “I think that was irresponsible,” he noted, “and I think it’s equally irresponsible for the then opposition, now government, to promise not to reverse that.”
Lord King was also dissatisfied with the way Britain judges its national debt. “The ratio of national debt to national income is the right metric by which to judge whether we’re on a sustainable path, but to judge it by reference to a forecast five years ahead – a rolling five-year horizon – doesn’t make any sense… The right thing to do would be to commit to having the ratio of debt to national income falling by the end of this Parliament, a fixed date.”
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