A Job Not Well Done?

Sir Mervyn Allister King, GBE, FBA is the current Governor of the Bank of England and Chairman of the Monetary Policy Committee. Last week he unveiled the Bank’s, and his last, quarterly Inflation report, exiting on a more optimistic note by saying, “There is a welcome change in the economic outlook, today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago.” Growth projections over 2013 was projected by the Bank to come in at around 1.2%, up from its 1% forecast in February, whilst the annual inflation rate is likely to drop to the Bank’s official target of 2 per cent within two years, having previously warned that the rate would remain above this level over the forecast period.

At the end of June he retires on a wonderful pension, mooted to be over £200K pa, the result of a non-contributory final salary scheme, called a court section, which lets him accrue a pension worth two-thirds of his final salary after just 20 years, twice as fast as any other final-salary schemes, if you can find one in the private sector that is, which are designed to generate a two-thirds pension after 40 years.

So was he worth the £300, 000 annual salary, plus benefits, not to mention the aforementioned pension? Let’s have a look.

After an academic career, during which time he served a spell as the visiting professor at Harvard and MIT, sharing an office with Ben Benanke, the then assistant professor, King joined the Bank of England in March 1991 as chief economist and executive director, being appointed Deputy Governor in 1997, then as Governor on 1 June 1998.


The Bank of England’s core purpose is monetary stability, meaning stable prices and confidence in the currency, according to its web-site. Stable prices are defined by the Government’s inflation target, which the Bank seeks to meet through the decisions delegated to the Monetary Policy Committee, of which Mervyn chairs.

A glance at the chart above shows that over his 15 year tenure, the annual inflation rate, as defined by CPI, has been anything but stable, missing the 2% pa target for most of the period. Likewise for the currency, which has seen a 35% swing in “value” when measured against the $US.

When the currency is measured on a “trade weighted basis” it shows little, if any, confidence at all.


The bank’s second core purpose is financial stability, which entails detecting and reducing threats to the financial system as a whole. On this front King, after becoming the Governor, explained that Bank of England policy was “similar to that of the Federal Reserve” under Alan Greenspan, where Greenspan described his approach as “mitigating the fallout from the bursting of a bubble when it occurs,” agreeing with Greenspan that, “It is hard to identify asset price ‘bubbles.’


Well, aside of ignoring the warnings about the UK housing market, given in 2004 and 2005, Mervyn has reigned over a period a falling economic growth, as defined by GDP, despite presiding over perhaps the largest credit bubble in history, which has led to a period of massive instability.

The ongoing disaster area, called QE, a policy that punishes the prudent whilst foolhardily propping up bust financial institutions, will be the legacy of Mervyn king’s Governorship and the history is unlikely to be kind.

During a television interview with Sky news this past Sunday, the Governor stated, “I’m not satisfied with the pace of the UK’s recovery and more needs to be done,” going on to say, “we need to do more to use up spare capacity.”

What he and his cohorts consistently fail to mention, assuming that they understand basic economics, is that by presiding over a credit bubble, particularly the size of this one, it creates massive over-capacity and deters sound businesses from adding to it.

So in summary, he hasn’t been worth it, but then few of the Central Bank Governors’ have.

PS    Just so that you know that it isn’t just me, the following is a comment from David Blanchflower, Professor of economics at Dartmouth College and a former member of the Bank of England MPC, from an interview with Bloomberg’s Tom Keene last Friday (bold emphasis is mine):-

Q: You and Mervyn King are never going to be best of friends. He was selling the idea that recovery is just around the corner in the U.K. Are you a buyer?

A: Well, I think it was the 89th press conference for an inflation report and over the last 20, he has more or less said the same thing. But each time, he has had to come to the next one and say, actually I was wrong last time, but don’t worry, the next time it is going to come. Some recovery is going to come because when you are sitting at zero, which is where the U.K. economy is, growth of 0.2 is a recovery but I wouldn’t give up the day job. The performance of the economy over the last 10 quarters has been disastrous, 0.1 percent average a quarter, and all driven by the Olympics. So to say there is some recovery coming — well, it’s pretty hard not to, given there hasn’t been any growth at all.


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