Mervyn King takes a swipe at Bank successor Mark Carney
Inflation target essential part of policy, says King – but Carney and Osborne say otherwise
BANK OF ENGLAND governor Sir Mervyn King has taken a veiled swipe at his successor Mark Carney, according to the Daily Telegraph.
In one of his final speeches before stepping down in June, King said that the Bank's inflation target of two per cent was an "essential" part of monetary policy.
Candaian Carney has suggested that the central bank could make GDP growth a priority if traditional methods failed to produce economic growth. He has also suggested fixing interest rates regardless of inflation until unemployment hit precise thresholds. Both ideas have found favour with Chancellor George Osborne.
But King said dropping low inflation targets would be to forget a vital lesson from history. Speaking at a Confederation of British Industry dinner in Belfast, he said: "In the 1960s, Britain stood out from much of the rest of the industrialised world in trying to target an unrealistic growth rate for the economy as a whole, while pretending that its pursuit was consistent with stable inflation.
"The painful experience of the 1970s showed that this illusion on the part of policy-makers came at a terrible price for working men and women in this country."
In the 1970s inflation averaged 16 per cent in the UK and peaked at 25 per cent in 1975.
King's words were echoed by a former member of the Bank's Monetary Policy Committee, Andrew Posen. He said that GDP growth targets would be a serious mistake.