Bank of England's Mervyn King Warns Over Inflation
THE TELEGRAPH: Bank of England Governor Mervyn King has warned that high inflation will continue to erode earnings power through next year as the economy faces the threat of 'stagflation'.

Prices rises have consistently defied the Bank's expectations of a slowdown, adding to pressure on households as wage growth remains weak and the Government introduces a strict austerity package.

The Bank's rate-setters are charged with keeping inflation at 2% but the Consumer Prices Index benchmark has been above 3% throughout the year.

However, addressing a committee of MPs, Mr King suggested that they will be reluctant to try to curb the problem by raising borrowing costs from 0.5 per cent any time soon because of the weakness of the economy.

“There will come a point when we will certainly need to ease off the accelerator and return Bank Rate to more normal levels,” Mr King told MPs today.

“I look forward to that time because it will probably be a signal that there is a smoother drive ahead, with the economic outlook improving in a durable way. But I fear there is some considerable distance to travel before we can begin to use the word ‘normal.’” >>> | Wednesday, July 28, 2010

Mervyn King Calls for Pay Cuts and a Carve-up of International Banks
TIMES ONLINE: Mervyn King said yesterday that bankers should take a permanent pay cut to align them with other professionals as he outlined plans to carve up lenders across national boundaries.

Speaking to the Treasury Select Committee, the Governor of the Bank of England said the banking sector could be sustainable only if “returns and remuneration for both equity holders and employees are comparable with other professions and other types of investments”.

Mr King said that he thought it very unlikely that anyone would be able to “justify the extraordinary pay recently”, hinting at the row over the size of City banks’ bonus pools.

Mr King told the committee that he believed big lenders should be forced to carve themselves up into subsidiaries along national lines to try to build financial firewalls across the banking system and stop massive losses spreading. Foreign banking subsidiaries that run into trouble could be separated and contained — and become the problem of the overseas country in which they are based.

While Mr King said that the central bank was still considering whether to implement so-called Glass Steagall measures that force banks to separate their retail and riskier investment businesses from each other, he explained: “Banks who think they can do everything for everyone all over the world are a recipe for concentrating risk.”

He said that, ideally, the banking sector should be made up of more, smaller participants that specialised in different activities. >>> Suzy Jagger and Katherine Griffiths | Wednesday, January 27, 2010