The BoE has upgraded its outlook for growth and expects a faster fall in inflation, Sir Mervyn King said, offering a pleasant "parting gift" in his final inflation report as Governor. The Bank of England may revise up its 2013 growth forecasts today amid signs that the UK economy is turning a corner, as Sir Mervyn King prepares to present his final inflation report as the Bank's governor. – UK Telegraph
Dominant Social Theme: Everything just gets better and better. The Bank of England is telling you so.
Free-Market Analysis: The Bank of England's Mervyn King is leaving but he wants everyone to know that England has turned the proverbial corner on his watch.
The nation has slipped into a third recession apparently, but Mr. King is upbeat about the country's prospects. Monopoly central banking works after all.
Today marked the passing of an era at the Bank of England. Sir Mervyn King, Governor, published his final Inflation Report and delivered his last remarks on the economy at the quarterly press conference.
The Inflation Report was an innovation of Sir Mervyn's right back in 1993 in the wake of Black Wednesday – September 16, 1992, when Britain crashed out of Europe's Exchange Rate Mechanism. In the months following that fateful event Britain started to target inflation.
Originally it was in the hands of the politicians, before the Bank was given independence under Gordon Brown in 1997.
Sir Mervyn was the UK's foremost figure on inflation targeting in 1992 and had only recently joined the Bank as chief economist. On February 12, 1993, he published the first ever Inflation Report and presided over the press conference that followed.
It has been his publication ever since. He has chaired every single Inflation Report, first as chief economist, then as deputy Governor, and – since 2003 – as Governor. In total, he has overseen 82 reports and press confrerences, never missing a single one.
There could be no more visible statement of the new era than when Mark Carney, his successor, takes the helm at the next press conference in August.
Sir Mervyn said: "There are some things about this job I certainly won't miss, but one thing I will miss will be chairing these Inflation Report press conferences. They are the probably the one event I look forward to, and prepare most hard for, and believe to be most valuable."
It is nonetheless a sign of the times that the reports King looks forward to are actually misnamed. What he is referring to as inflation is actually "price inflation."
Inflation, as free-market economics shows us, is a monetary phenomenon. Currency like any other product is devalued when too much of it is produced. Thus, "inflation" occurs when money is printed and circulated.
What King really means when he is reporting on inflation is that the money he has printed hasn't yet circulated. It hasn't circulated because central bankers have so propped up the larger economy and failing private facilities that banks and others don't trust themselves to invest. They have no idea what is solvent and what is not.
Ironically, the lack of circulation – a measure of distrust – is just what Mr. King is trumpeting as a positive sign. It is not.