Credibility deficit

12 May 2010 By Neil Collins

The Bank of England’s governor says cutting the fiscal deficit is Britain’s top priority. But if the BoE is dragged into advising the new coalition it risks becoming less independent. Meanwhile its grip on inflation its core mandate looks increasingly unconvincing.

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The Bank of England's quarterly Inflation Report, published on May 12, predicted that UK inflation will fall rapidly, and is likely to be below the 2 percent target for the Consumer Prices Index by early next year.

The central projection is for the CPI to stay below target until at least 2013 "as the temporary effects of the factors pushing up on inflation wane."

Mervyn King, BoE governor, warned that the "window of opportunity" provided by the "decisive actions" to limit contagion in the euro zone "must be used to tackle excessive fiscal deficits and rebalance demand".

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