Mr King insisted that the Monetary Policy Committee could not have increased interest rates from their current record low level to tackle the rise in inflation.
“If the MPC had raised the Bank Rate significantly, inflation might well have started to fall back this year, but only because the recovery would have been slower, unemployment higher and average earnings rising even more slowly than now,” he said.
“The erosion of living standards would have been even greater. The idea that the MPC could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking.”
He added: “Monetary policy cannot be based on wishful thinking. So, unpleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal.”King also said:
“In 2011, real wages are likely to be no higher than they were in 2005,” he said. “One has to go back to the 1920s to find a time when real wages fell over a period of six years.
“The squeeze on living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies.”SOURCE
But do not fear. The good George Osborne, British Chancellor of the Exchequer, blamed the UK's recent dip in gdp on... get this - snowflakes and cold weather. That should make every Briton feel confident and much better.
But the Telegraph reports otherwise:
Mr Balls accused him of making up “excuses about the weather”. Economists also raised doubts about the cuts. Jonathan Loynes, of Capital Economics, said: “Although heavily affected by the weather, the UK’s shockingly bad fourth quarter GDP figures raise serious concerns over whether the economy is in a strong enough position to withstand the fiscal tightening.” Howard Archer, an economist at IHS Global Insight, added that the figures reinforced concern over the economy’s ability to grow “in the face of spending cuts and tax hikes”.SOURCE
Spending cuts and tax hikes... sounds like deflation to me. Europe, meet your cousin, the UK. Good luck to you both. or you can take a page from your other cousins across the pond, the Americans: print away, spend away, and kill your currency to "save your economy! Well, at least buy some time.
God save the Queen? No! God save us all!