Mervyn gives message of hope in growth
Recession felt most keenly in Northern Ireland, says King
Northern Ireland's business community has an important role as "the agency of change and reconciliation", Bank of England Governor Mervyn King has said.
The governor, who leaves the post later this year, acknowledged in last night's speech at the CBI dinner at Titanic Belfast that the economic downturn had been felt more keenly in the province.
"The need to fix the banking system and introduce improvements to the future supply performance of the economy are, I know, felt even more keenly here in Northern Ireland than in Great Britain.
"And patience is a quality that has been demanded of you all in the province over many years.
"The business community is the key to the prosperity of Northern Ireland. I wish all of you success in the challenges ahead."
His 10 years in the role will be remembered for the credit crunch and monetary stimulus measures taken by the bank to counter it, from cutting interest rates to a record low of 0.5% to £375bn in quantitative easing. These were summed up by Sir Mervyn last night as a "powerful combination of medicines" without which "depression" would have ensued.
He said the Northern Ireland economy has "significant" differences from the rest of the UK, but said he would nonetheless focus on the wider UK economy during his keenly-awaited speech.
While other major countries were in recovery mode, the UK still faced weak growth and above-target inflation. The UK economy had to rebalance, which was affecting the pace of recovery. Output had grown by only 3.5% since the middle of 2009, compared to 6% or more in other countries.
And a squeeze on real incomes meant that "real take-home pay is no higher than back in 2004".
But he said that the right policies would ensure that progress is "delayed" and not "derailed".
Measures to rebalance the economy long-term were required, which would lead to a return to more normal interest rate levels.
He said the economy was recovering slowly "but we are moving in the right direction".
"If we embark on the type of programme I have outlined tonight, I believe we can roll back the black cloud of uncertainty darkening the outlook for demand, allow the rays of supply optimism to peer through, and sustain a recovery based on a successful rebalancing of the UK economy."
... but the economy is still on shaky ground after borrowing rises
By Annabelle Dickson And David Elliott
While the Bank of England governor was on his way to speak at the CBI dinner in Belfast he was mulling over another worrying set of borrowing figures.#
Official data released yesterday showed another leap in public sector borrowing and shone a light on the shaky foundations on the UK's coveted AAA rating.
The figure, excluding financial interventions such as bank bailouts, was £15.4bn in December, compared with £14.8bn in the same month the previous year, slightly worse than the £15.2bn pencilled in by economists.
It comes after an unexpected rise in November, when borrowing rose to £17.5bn, up £1.2bn from last year, after tax receipts were dented by lower energy company profits.
Within the December figures, the picture was much the same as previous months, with Government spending outstripping tax receipts. Total expenditure was up 5.4%, with tax receipts up just 3.6% in the month.
Public sector borrowing for the year to date is £106.5bn, excluding a one-off £28bn boost from the transfer of the Royal Mail pension fund into Treasury ownership, which is 7.3% higher than the same period last year.
Martin Beck, UK economist at consultancy Capital Economics, said December's public finance figures confirmed that the Government's fiscal consolidation plans were still off track. He expects borrowing for 2012/13 to come in at around £113bn, £5bn above the tax and spending watchdog's forecast of £108bn.
More bad news on the UK economy is expected this week with the Office for National Statistics due to reveal that output contracted in the final quarter of 2012. All three of the major credit ratings agencies now have the UK's AAA rating on negative outlook.
ING economist James Knightley said: "The question is how long the UK can hold on to its AAA status. With the US and France having been downgraded by one ratings agency in the past couple of years, another disappointing UK borrowing number and a widely expected contraction in GDP on Friday will intensify the threat of the UK suffering the same fate."
But a Treasury spokesman said the figures underlined that the economy was healing.
In his Autumn Statement in december, Chancellor George Osborne admitted that he would be forced to draw out the age of austerity by at least another year.
Last month, the Office for Budget Responsibility (OBR) said it expected borrowing to be £108bn in 2012/13 - lower than its £119.9bn March estimate.
Public finances will be swelled by assets from the QE programme, which will be transferred to the Treasury, and the Government is also expecting the auction of bandwidth for 4G mobile broadband services to provide a boost.
Any further signs of the weakness of the UK economy will fuel speculation that the Bank of England will decide to carry out more asset purchases this year.