Economic recovery is in sight, says Governor Sir Mervyn King

In some of his most upbeat comments since the crisis, Sir Mervyn King claimed “there is momentum behind the recovery that’s coming” and that “good progress” has been made towards a new, sustainable economy in the last few years.

“I think that during the course of 2013 we will see the recovery come into sight,” he said. “If you take away what happened in the North Sea oil production and in construction, the UK economy last year grew by 1.5pc.” Overall, the economy grew by 0.2pc in 2012, according to the latest official data, and is expected to grow 1.2pc this year.

The Governor also revealed that he has held discussions with the Chancellor and the Prime Minister about their economic strategy, when he has pressed for more supply side reforms, reports The Telegraph.

He refused to be drawn on his recommendations but “supply side” could be short-hand for improving the economy’s credit supply. Last week, the Prime Minister hinted that the Bank would get new tools to boost growth in the Budget, saying he backed “monetary activism” and that “the Bank must support the recovery”.

The Treasury is now widely expected to extend the Bank’s Funding for Lending cheap credit scheme or give it new powers to help stimulate the economy, possibly alongside an altered inflation target. “Supply side” is also a term often used in reference to tax cuts and deregulation.

“I’ve had conversations with the Chancellor and the PM about the strategy,” Sir Mervyn told ITV News on a trip to the West Midlands.

“We talked privately about the various things that could be done… I’m confident there are things the UK can do and I’m very confident the Government understands that.”

Sir Mervyn’s comments came despite his recently voting to increase quantitative easing by £25bn to £400bn, and amid weak economic data for the last two months that have rekindled fears of a triple dip recession.

The change in tone has come shortly before Sir Mervyn’s tenure as Governor ends at the end of June. As recently as November, the Governor said the UK “may be in for a period of persistently low growth” thanks to the “unappealing combination of a subdued recovery, with inflation remaining above target for a while”.

Yesterday he was instead claiming that a vital rebalancing of the economy from consumption to exports was in train. “We’re making good progress towards that re-balancing,” he said. “Policies are in place to achieve it. We are on track to achieve it. Recovery is in sight.”

What’s held the recovery back has been “[flagging] demand for exports and the enormous uncertainty generated by what’s happening in the euro area”, he argued.

Sir Mervyn also retreated from his earlier attempt to talk down the pound. Having said last year that the 8pc appreciation in sterling “was not a welcome development”, he cheered its recent decline to a two-and-a-half year low and suggested the pound had fallen far enough.

“We’re certainly not looking to push sterling down,” he said. “We are moving to a properly valued exchange rate. I think we’re probably there.”