I almost felt sorry for ‘Swervyn’ Mervyn King, the governor of the Bank of England this week when he was forced to write yet another apology to UK Chancellor Alistair Darling explaining why CPI inflation was running at 3.2% in February when it is supposed to be 2%. According to Merve the Swerve, a major factor was GBP weakness. “Oh really?” I screamed, remembering that in early February, I actually wrote to various members of the BoE’s monetary policy committee pointing out that the UK was importing inflation and cautioning them about any further easing.
That was two rate cuts ago and before the BoE embarked on its quantative easing programme. So while it is clear that the MPC thought my advice – gleaned from the real world – was worth diddly squat, it is also blatantly apparent that the MPC needs to get out a bit more. King still maintains that the MPC believes that there are “substantial risks of undershooting the 2% CPI inflation target in the medium term.”
Time will tell, but with the printing presses running and GBP still weak – even though King says there is no reason for it to be so – it should not be taken as a given.