Bank warns of hard times
Bank of England governor Mervyn King has warned that the British economy is about to embark on a bumpy ride over the coming years after the stability enjoyed in recent times.
At a hearing in front of a House of Lords parliamentary committee, King said people should not expect the Bank to “fine tune the economy”.
“The idea that the MPC can fine tune the economy and can in fact ensure that the economy always seems to grow at some fixed rate every quarter is absolutely imaginary.
“It’s important that people understand what we can do and what we can’t do.”
He said that people had been talking as if the MPC was targeting total demand or retail sales and consumer spending.
“We are not. We are trying to target inflation. We have an inflation target.” Inflation has recently overtaken its 2 per cent target, due in part to rising energy costs. But King said there had also been a pick-up in underlying price pressures.
The governor’s comments came as PriceWaterhouseCoopers released a report warning that more than half of UK mid-market businesses expect company insolvencies to rise over the next year.
Manufacturers in particular are gloomy about their sector prospects, with three quarters predicting a growth in business failures in the next twelve months. Worryingly, less than one in seven businesses believe that insolvencies will actually fall in the next year.
Colin Haig, partner in the Business Recovery Services team at PWC, explained: “Rising levels of corporate debt and record low levels of consumer spending are twin perils facing struggling British business.
“We are seeing lots of companies who are already showing signs of distress looking nervously at rising raw material prices, and the cost of increased regulation.