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Bank chief renews deficit warning Bank chief renews deficit warning
(about 3 hours later)
The governor of the Bank of England has renewed his warning to the government that it must cut the public deficit.The governor of the Bank of England has renewed his warning to the government that it must cut the public deficit.
Mervyn King said uncertainty about the government's intentions had a direct bearing on monetary policy.Mervyn King said uncertainty about the government's intentions had a direct bearing on monetary policy.
He said "a key element in raising the national saving rate is the elimination over time of the structural deficit in the public finances".He said "a key element in raising the national saving rate is the elimination over time of the structural deficit in the public finances".
Mr King also warned that inflation was "likely to pick up markedly in the first half of this year".Mr King also warned that inflation was "likely to pick up markedly in the first half of this year".
Referring to the public deficit, he said: "Of course, there is a perfectly sensible debate about the appropriate timing of the withdrawal of the temporary fiscal stimulus as the economy recovers.Referring to the public deficit, he said: "Of course, there is a perfectly sensible debate about the appropriate timing of the withdrawal of the temporary fiscal stimulus as the economy recovers.
"Some has in fact already been withdrawn with the return of the standard rate of VAT to 17.5% at the beginning of the month. "Some has, in fact, already been withdrawn with the return of the standard rate of VAT to 17.5% at the beginning of the month.
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"But uncertainty about how and when fiscal policy will respond has a direct bearing on monetary policy. And markets can be unforgiving.""But uncertainty about how and when fiscal policy will respond has a direct bearing on monetary policy. And markets can be unforgiving."
During his speech Mr King quoted the US Federal Reserve Chairman Ben Bernanke. During his speech, Mr King quoted the US Federal Reserve Chairman Ben Bernanke.
Speaking about the fiscal position in the United States, Mr Bernanke said "near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth". Speaking about the fiscal position in the US, Mr Bernanke said: "Near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances.
"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."
Inflation riseInflation rise
Mr King said that Chancellor Alistair Darling "has made clear that the spring Budget provides the opportunity to do precisely that".Mr King said that Chancellor Alistair Darling "has made clear that the spring Budget provides the opportunity to do precisely that".
He added that inflation was "likely to rise to over 3% for a while", and that it could go even higher if energy prices and indirect taxes were to increase further.He added that inflation was "likely to rise to over 3% for a while", and that it could go even higher if energy prices and indirect taxes were to increase further.
However, he said inflation "should return to target in the medium term".However, he said inflation "should return to target in the medium term".
UK inflation rose at its fastest annual pace for nine months in December.UK inflation rose at its fastest annual pace for nine months in December.
The Office for National Statistics said the Consumer Price Index (CPI) measure of inflation had risen to 2.9%, up from an annual rate of 1.9% in November.The Office for National Statistics said the Consumer Price Index (CPI) measure of inflation had risen to 2.9%, up from an annual rate of 1.9% in November.
BBC chief economics correspondent Hugh Pym said Mr Darling has said in a newspaper interview that plans to halve the deficit are non-negotiable.BBC chief economics correspondent Hugh Pym said Mr Darling has said in a newspaper interview that plans to halve the deficit are non-negotiable.
So Mr King's remarks may have been aimed as much at number 10 Downing Street, as number 11, our correspondent added.So Mr King's remarks may have been aimed as much at number 10 Downing Street, as number 11, our correspondent added.