Semi-Daily Journal

Mervyn King Coos Like a Sucking Dove

With its new Governor, Mervyn King, at its head, the Bank of England cuts interest rates:

FT.com Home US: Before yesterday, some suspected that Mervyn King, the new governor of the Bank of England, would be a more dogmatic "hawk" on interest rates than Sir Edward George, his predecessor. He has refuted those suspicions, it seems, in the best possible way: by showing that when the facts change, he is prepared to change his mind. It is theoretically possible that Mr King was out-voted on the Bank's monetary policy committee yesterday, in the way that Sir Edward never was. But since his comments last week identifying the rise in the pound as the most significant development of the past month, Mr King has always looked likely to mark his accession by voting to cut rates. The only debate was over whether the MPC would move this week or next month.

The argument for expecting a delay was that by the next meeting, on August 7, the MPC will have the result of its new quarterly forecasting round, which will give a better sense of where its members believe the economy is going. But the committee clearly had no need of any number-crunching to see that the outlook was weaker than it had been expecting. When the forecasts are published, on August 13, it seems inevitable that the estimate for growth this year will be revised down from the 2.25 per cent that the MPC predicted in May. The foremost concern cited by the MPC in its statement was the "hesitant" condition of the global economic recovery. As the Bank for International Settlements put it in its annual report last week: "Hopes regarding the global economy have repeatedly been disappointed." A year ago, the Organisation for Economic Co-operation and Development forecast that the developed countries that are its members would bounce back to growth of 3 per cent this year. Now it expects less than 2 per cent...