Sir Mervyn King is now in his last month as Governor of the Bank of England. In July he will be replaced by Mark Carney, currently the governor of the Canadian central bank. Sir Mervyn has had a turbulent ten years as Governor. He started the job in July 2003, just as the markets were beginning to recover from the Iraq War and the fallout from the end-of-century technology boom and bust. For the second half of his tenure he has had to deal with the 2007/08 financial crisis and its lingering consequences.
It is therefore unsurprising that Sir Mervyn was in a reflective mood when he presented the May Quarterly Inflation Report (QIR), the final to be issued under his reign. What was less expected was the optimistic note in his finale. For once, Sir Mervyn was able to say that “projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago.”
The improved outlook was partly down to the higher than expected figure of 0.3% growth for the first quarter, which was reconfirmed towards the end of May. That allowed the Bank to raise its growth estimate for 2013. On the inflation front, a week after the QIR’s publication National Statistics revealed a 0.4% fall in annual inflation for April, double the drop predicted by the pundits. At 2.4%, CPI inflation is still above the Bank’s target, but far enough away from 3% to mean Sir Mervyn’s successor should not be writing a ‘Dear Chancellor’ letter explaining above-target inflation immediately he takes up his post.
These pieces of good news do not mean the economic good times are just around the corner, even if the world’s share markets have seemed to think so of late. As Sir Mervyn noted, “…markets expect Bank Rate to remain below 1% for a further four years,” which hardly suggests an imminent return to boom times. Or, for that matter, any respite for those relying on income from bank or building society deposits.