Bank of England bosses make waves this week

Business banking news review: week ending 21 Feb 2013

When it rains, it pours: as the current Bank of England director claims the Government is causing the country’s financial problems, a new deputy is named.

Outgoing governor, Sir Mervyn King, says that the Government has been responsible for inflation being just too high over the time he’s been at the tiller at the Bank. Higher tuition fees and green taxes have been at the root of the problem, says Sir Mervyn, who accused the government of having its own goals and not perhaps caring much that the interest rates on most savings products are well below inflation.

It’s been four straight months since the consumer prices index was held at 2.7 per cent from January. Meanwhile the retail prices index, which is traditionally higher than the CPI, has gone up to 3.3 per cent.

CPI will most likely go above the 3 per cent mark by this summer, he predicted, and he leveled his finger directly on the government for its role in keeping tuition fees and energy bills high, making the job of the Bank of England that much more difficult. I can only imagine how Sir Mervyn must have been pulling his hair out every time he’s been called on the carpet by government ministers for having a high inflation rate, all the while feeling that it’s not his fault but Westminster’s!

Sir Mervyn may be on his way out, but inflation is most certainly not, he predicted. In fact there could be another three years of increases, though he did say that there were some scattered signs of recovery, adding that the abnormal recession we’ve been in will only naturally be able to be resolved by an abnormal recovery.

Meanwhile, even a Sir Mervyn rages against the Government, the Bank of England’s new deputy governor has been announced. The man selected is Andrew Bailey, and he’ll be the new Prudential Regulation Authority head as well, all starting from 1 April.

The BoE is undergoing a major overhaul of all its regulatory powers this year, and the new PRA is part of this new strategy. The PRA will have the responsibility for the risk management and safety of financial service providers such as banks and building societies.

Mr Bailey’s quite well suited for his new role, as he’s actually already doing the job for the Financial Services Authority. However, the FSA will relinquish its regulation of that particular area of the financial markets alongside Mr Bailey’s transfer, and the new deputy director will also be a member of the brand new Financial Policy Committee, an entity that will have the responsibility of keeping an eye on the overall finanicial health of the country’s banks in order to prevent another massive credit crisis.

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