–BOE King: Inflation Could Well Fall Below Target End 2012 or 2013
–Not Enough Money Flowing In UK Economy
–Comments From Sky And BBC TV Interviews

LONDON (MNI) – Underlying money growth in the United Kingdom is too
slow and inflation is set to fall “quite sharply” in early 2012 and
could drop below target in 2013, Bank of England Governor Mervyn King
said Thursday.

King, in a raft of television interviews following the re-launch of
quantitative easing, denied there had been any political pressure on the
BOE’s Monetary Policy Committee to provide further stimulus. He sought
to justify the QE decision in terms of the weakness of money growth, the
inflation outlook and the deterioration in the global economic outlook.

“For most of our lifetimes there has been too much money in the
United Kingdom economy. Too much money has been printed and injected
into the … economy and that did push up inflation,” King told Sky TV.

“Since the world financial crisis we are now facing the opposite
problem. There isn’t enough money in our economy. This is very unusual,”
he said.

He noted the amount of money in the UK fell over the past year and
“in underlying terms it may be growing about 2% a year. It needs to
grow faster than that. That is why we are creating money,” he said.

He said inflation in September, with the data still to come out,
“may well go above 5%. But that in our view is the peak and it will then
start falling and in the first few months of next year it will fall
quite rapidly, so that the underlying inflationary pressures will
disappear during the course of next year.”

The BOE head said one reason they sanctioned an extra stg75
billion in QE was “our concern is that the balance of risks now is that
inflation … next year could well fall at the end of the year, or in
2013, below the target.”

He painted a downbeat picture of developments overseas.

“I don’t know what is going to happen to the world economy and we
are not immune to developments in the world economy,” King told Sky TV.

“What we can do is to take measures at home to try and head off the
threat of shocks from overseas,” King said.

He told the BBC the world economy was slowing down faster than had
been expected.

King said a rebalancing of the world economy was as necessary as a
rebalancing of the UK economy.

He said BOE officials had talked in private with their eurozone
counterparts over what could be done. He said eurozone countries’
ability to replay their debts had been called into question but the UK,
on the other hand, had a credible deficit reduction plan.

King noted sterling had fallen some 25%, making the UK more
competitive and facilitating rebalancing.

He firmly rejected the idea doing more quantitative easing would
fuel currency wars and endorsed flexible exchange rates

King said, “if we hadn’t had the fixed exchange within monetary
union perhaps the scale of the imbalances would not have built up to the
level that they reached.”

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

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