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Wednesday, 13 May 2009

The King speaks

Some highlights from Mervyn King’s press conference after the Bank of England delivered its latest quarterly inflation and growth forecasts. For the record the BoE predict a 4.5% year-on-year decline in economic growth. It said that the economy won't begin to grow again until the middle of 2010rather than later this year as they had previously predicted. The forecasts are gloomier than the government's own projections for a 2009 decline in GDP of around 3.5%. Two government departments making the same forecast at tax payers expense, which gives us an idea about why growth may take some time.

Still here is some of what Swervin' Mervyn said:

It may get better, it may get worse, who can tell

"The chance that ... the level of output will be higher in the middle of 2010 is ... no higher than the probability that output will be lower in the middle of 2010. In other words, growth has just as much chance of being positive over the next 12 months as it has of being negative."

"The balance sheet considerations mean that you may well get growth over the next year, that may well happen ... whether that will be sustained depends on the adjustment to balance sheets."

"We may well get a recovery that proves to be sustained, then again we may not. At some point, growth will return to above trend levels in order to absorb the spare capacity that has been created by the very savage fall in output over the past 6 months..."

"There are real risks from the nature of the downturn and the role of the financial sector, that mean this could be a slower return to normal growth paths than we might have expected had this just been a normal business cycle"

It is going to take 10 years to fix the economy

"The likely impact for the next decade is going to be dominated by recovery from this financial crisis. I don't think the growth of productive potential will be permanently reduced."

"A lot will hinge on how quickly the banking sector gets back to levels of capital that will encourage it to lend on the same terms as before in terms of spreads."

"We should not assume that it's all doom and gloom. What I am saying today is that it's very difficult to predict the timing of a return to the historical growth rates that we've seen in the past."

but we have fixed the banks

"The actions that were taken to deal with the banking system have I think stabilised the banking system ... and removed the panic."

"These (fiscal) problems are manageable. It's a question of will."

"There's absolutely no reason for people to talk in dramatic terms at all."

by printing money

"We are certainly not disappointed. The exit strategy is very simple - it's a combination of raising bank rate and selling some of the assets we have purchased. We're ready to do that whenever we think it is appropriate to do so."

"What matters is the willingness of the monetary policy committee to do it, I can assure you that every member of the MPC is ready to follow the exit route when it is appropriate to do so."

"No one can know much about the effectiveness so far. We've only seen about 3 weeks worth of data ... It's far too early to judge."

Our initial assessment is

"We were certainly pleased by the initial impact on yields. Of course yields have backed up somewhat since then, but many other things have happened. What's hard to judge is the counterfactual ... I feel these actions are likely to have had some impact."

"It will take 6-9 months I think before we see more evidence."

we are all doomed

"It was helpful that the budget was extremely honest and open about the scale of the fiscal problems facing us."

"There certainly seem to us at least as many reasons to suppose that it may turn out to be a smaller deficit than a bigger one."

"There is no doubt that we will need to move back to a path for fiscal sustainability, that is very important."

Even when we try to see the bright side, things are getting worse

"The pace of decline has moderated and a number of indicators are picking up. This is not an artefact of the data."

I have never been here before.

"This is not like the typical business cycle of the post war period."

Do you have a number I could call?

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