Morning Line: The governor is not a threat to growth, just realistic

The governor of the Bank of England Mervyn King was talking down the economy again yesterday, saying people should not get too excited by last week’s stronger-than-expected UK growth figures.

The UK economy grew at 1.1% in the second quarter, twice as much as anyone had expected, but King isn’t going to let that lift his spirits.

In this day and age where smartly dressed young go-getters abound, it doesn’t help that King is always so monotone, his appearance so grey, his responses so measured.

We all know that confidence, optimism and a cheery outlook breeds success so it is frustrating that King seems to always want to play down the good news.

Quizzed by MPs during yesterday’s Treasury Select Committee, King said that on the face of it the data was ‘encouraging’ but warned ‘we must be careful not to read too much into it.’

He said uncertainty about the economic outlook will remain as long as credit conditions remain tight and markets are volatile and warned problems overseas means we cannot be confident the recovery in demand, output and employment will be sustained.

Sterling has climbed this week as the picture in the US looks increasingly lacklustre and as the GDP data here sparked new hopes the Bank will lift rates sooner rather than later.

But here too King – and other committee members – was keen to dampen the optimism, saying the debate about monetary policy is about the ‘appropriate level of stimulus not about putting on the brakes’.

Both he and MPC member David Miles, former chief economist at Morgan Stanley, hinted it may be necessary at some point to pump yet more money into the economy – defying those that suggest it is this policy that has led to increased inflationary pressure.

Both conceded inflation will now be above target for ‘much of next year’ – eating into our incomes even as wages look set to remain flat.

Both fear that this could become self-fulfilling. That if inflation stays high people will expect inflation to stay high and therefore it will.

That seems to be borne out by today’s UK consumer confidence data from the European Commission which shows more people expect prices to rise over the next 12 months than they did a month ago even though prices have been falling for two months.