Cable savages Bank for failing to boost economy: Demand for new ideas as King heads for the exit
By HELEN LOVELESS, FINANCIAL MAIL ON SUNDAY
The growing rift between the Bank of England and the Government was exposed this weekend when Vince Cable accused Sir Mervyn King of not doing enough to help economic recovery.
At the same time, the Business Secretary said he was looking forward to Mark Carney taking over as Bank Governor as he would bring much-needed ‘new ideas’ to boost the economy.
King said last week there was little more the Bank could do to drive economic recovery, adding that ‘there are limits to what can be achieved via general monetary stimulus’.
New ideas: Business Secretary Vince Cable is looking forward to Mark Carney taking over as Bank Governor
But in an apparent direct criticism of King, Cable said he did not ‘buy’ the argument that the Bank had done everything it could to get the economy back on track.
‘I do not agree this is the case,’ he told Financial Mail. ‘I’m not saying what they could have done but the Government cannot avoid trying to sort out the deficit, so you are going to get fiscal contraction.
‘We can argue about how fast and in what form, but the point is that monetary authorities are going to have to continue to support the economy.’
Cable added: ‘People are looking forward to Mark Carney taking on his new role as Governor in the hope for some new ideas about how this can be done.’
His enthusiasm for the Canadian, who was appointed by George Osborne, could, however, add to fears of an overly close relationship developing between Whitehall and Threadneedle Street, when the Bank has a mandate of independence.
Cable also questioned the success of the Funding for Lending Scheme, which aims to boost support for small firms.
It was set up by King and is widely seen as his flagship idea.
‘Nobody doubts that in one particular area the Funding for Lending scheme is having an impact,’ said Cable. ‘But this is in the mortgage market rather than on bank lending to smaller businesses.
‘I have already written to the Deputy Governor, asking to meet to discuss how we can now develop the scheme in the way that is actually needed.
‘It’s tricky because you can’t be too interventionist otherwise you fall foul of state rules, but we definitely need to look at it.’
According to reports last week, King believes there was nothing the Bank could have done in 2010 to speed up the economic recovery.
A report published last week predicted that inflation will stay above the official target of 2.5 per cent for at least the next 18 months.
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