Soon-to-be-unemployed sports team managers the world over know what it means when they receive an affirmation of full confidence from the club chairman. Accordingly, we know roughly what to make of this:
‘The Bank of England has credibility,’ said Osborne (pictured). ‘I have complete confidence in it.’
The chancellor will not alter the 2% inflation target and said he was ‘happy with the approach’ taken by the Monetary Policy Committee (MPC).
‘The inflation remit is the correct one,’ he said. ‘I have not plans or thoughts about changing it and, as my exchange of letters with the governor confirmed, I’m happy with the approach they are taking and trust the judgment of the MPC.’
Well, he said “Bank Of England” not “Mervyn King”, so perhaps that’s even worse for King. Anyhow, after the outbreak of King-bashing over the past couple of weeks, well characterized in a report on last week’s inflation report bunfight,
There was something surreal about today’s Bank of England press conference to discuss its latest Inflation Report. The BOE says quite clearly in its executive summary – and Governor Mervyn King repeated it continually – that “the chances of inflation being above or below the 2% inflation target in the medium term are broadly equal”. But there was nothing broadly equal about the line of questioning from the assembled journalists: unless I blinked at the wrong moment, I don’t remember a single question about the risks to the downside. Instead, the Governor was subjected to a sustained and faintly hysterical assault, with almost all the questions a variant on the accusation that the BOE had either deliberately or incompetently lost control of inflation. Under the circumstances, I thought Mr. King handled it rather well.
…I think we know what Osborne means. King is on a warning: a state in which he can survive for years, but only as long as inflation doesn’t look out of control; and only as long as his stance on bank reform is appropriately uncontroversial, which, so far, it isn’t. King is, as it were, the spearhead of radical bank reform: as we see, efforts are underway to take some of the edge off him.
Soo…with the Treasury onside and King enjoying Osborne’s full confidence, it’s on to the next round to the UK bank/regulator faceoff.
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I don’t see how George Osborne can logically be simultaneously happy with the approach taken by the MPC and believe that the BoE’s inflation remit is the right one. The remit says clearly (http://www.legislation.gov.uk/ukpga/1998/11/part/II) that the MPC has no business supporting real activity as long as inflation is outside the acceptable range (ie it is only expected to consider growth and unemployment “subject to” its inflation objective being met), yet in the inflation report press conference, Mervyn King was practically admitting (http://www.bbc.co.uk/blogs/newsnight/paulmason/2011/02/inflation_mervyn_and_me.html) that the MPC had chosen not to tighten monetary policy sufficiently to hold inflation within the acceptable range at the cost of a deeper recession and higher unemployment.