Sir Mervyn King calls for more QE
In his final Mansion House speech, Sir Mervyn said there is a "powerful case" for more money printing while the battered eurozone economy and Britain's hamstrung banks continue to hold back growth.
He also called for "decisive action" on Britain's part-nationalised banks, backing Chancellor George Osborne's announcement that the Government plans to sell its stake in Lloyds Banking Group.
And he said the Bank's Prudential Regulation Authority (PRA) will on Thursday publish details on the capital shortfalls of each of the UK's eight major banks - which together have to plug a £25 billion capital gap.
Sir Mervyn, who has headed the Bank since 2003 and overseen 16 years of rate-setting, told the banquet in the City that despite a recovering housing market, upbeat business surveys and improving money supply, "the need to support the recovery remains". He said: "It is too soon to say the job of securing recovery is complete. There is a powerful case for more stimulus."
The Cambridge-educated economist, who joined the central bank as chief economist in 1991, defended its unprecedented QE drive as "necessary to prevent an even worse recession". He said without similar action from other central banks, the world would have experienced a "major depression". Sir Mervyn said there is "clearly some way to go before we can claim to have a really well-capitalised banking system". He said Britain's banks have been told by the PRA how much extra money they must hold in reserve, and it will publish the details of its capital review on Thursday.
He added overhauling the UK's banking system is the "work of a generation", after the Parliamentary Commission on Banking Standards this week called for reckless bank bosses to be jailed and bonuses to be clawed back. "It is not in our national interest to have banks that are too big to fail, too big to jail, or simply too big," he said.
Sir Mervyn's tenure spanned the 2008-2009 credit crunch, which saw the collapse of niche mortgage lenders including Bradford & Bingley and Northern Rock, as well as the multibillion-pound bailouts of banking giants Lloyds and Royal Bank of Scotland. He described his spell at the Bank as a "game of two halves". "It turned out to be a rather exciting and dramatic game, full of incident, with a red card or two and a passionate and at times justifiably angry crowd," he said. "We shall have to wait for the historians of tomorrow to file the full match report."
Economists expect Mr Carney's arrival on July 1 to herald a fresh round of QE. Vicky Redwood, chief UK economist at Capital Economics, said Mr Carney would take on the mantle left by Sir Mervyn in calling for more action to aid recovery efforts. "We still expect Mr Carney to usher in a renewed round of policy stimulus soon after he takes over next month," she said.
© 2013 Press Association