The Bank of England governor Mervyn King has warned that the UK is set for a ‘sober’ decade as it looks to recover from the financial crisis.
Speaking to the Black Country Chamber of Commerce on the eve of the Spending Review, King said that the next decade would be defined by “savings, orderly budgets and equitable re-balancing”.
He said: “The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while.”
King warned that countries must not fall into the mistake of trade protectionism to avoid the same fate seen by the global economy in 1930s.
He said greater prudence in this country would be the UK’s contribution to a “grand bargain” that countries worldwide must strike to see off the threat of protectionism and avoid a “disastrous collapse” in global economic growth.
King said nations must set aside self-interest and draw up a plan for common economic reform. Countries in deficit like the UK must save more, he said, while surplus nations like China, need to “shift away from reliance on exports”.
“All countries accept that global rebalancing is necessary,” he said. “But there is … a disagreement on the appropriate time path of real adjustment.
“Surplus countries need to move slowly so as not to de-stabilise growth while deficit countries “are under near-term pressure to reduce the burden of debt”,
King also warned that it may be some time before the UK inflation target of 2 per cent is reached.
King did raise hopes of further quantitative easing given that the present amount of money in the economy was still “barely growing at all”.
King said it was a “key role” for the Bank to provide economic stimulus when needed.