King blames rising inflation on 'own goals' by ministers: Governor attacks green taxes and university fees

• Sir Mervyn said squeeze on living standards will last for another three years
• He said there was ‘cause for optimism in the UK’
  
• But he added that economic growth is ‘likely to be weak’ in coming months

Speaking out: Sir Mervyn King yesterday accused the Government of scoring an embarrassing 'own goal' by pushing up inflation through green taxes and tuition fees

Sir Mervyn King yesterday accused the Government of scoring an embarrassing ‘own goal’ by pushing up inflation through green taxes and tuition fees.
The Governor of the Bank of England warned that the unprecedented squeeze on living standards will last for a further three years as prices rise and wages stagnate.
But, in a coded attack on ministers, he said much of the pain was ‘self-inflicted’ because it stemmed from big increases in energy bills and tuition fees.
‘Whether it’s on financing education, green policies or other policies, what they have done is push up prices and that clearly makes our job in the short-run more difficult,’ Sir Mervyn said.
The average household energy bill is now more than £1,300 a year and has risen nearly 25 per cent since early 2011, with suppliers blaming green levies imposed by the Government. Rail fares, which are regulated by the Government, have also soared and university tuition fees are now as much as £9,000 a year.
Speaking at the Bank’s quarterly inflation report yesterday, Sir Mervyn said there was ‘cause for optimism in the UK’ but added that economic growth is ‘likely to be weak’ in the coming months.
He also said the level of economic output is not expected to return to its pre-recession peak in 2008 until 2015 – marking a seven-year downturn.
And with inflation expected to remain above 2 per cent until early 2016 there could be three more years of squeezed living standards. Even in 2016, there is a ‘50-50 chance’ inflation would stay above target.

Senior figures in Westminster expressed amazement that the Governor had spoken out so vociferously against Government policies.
Former Liberal Democrat Treasury spokesman Lord Oakeshott said: ‘The Governor is basically blaming the Chancellor for pushing up prices.’

Not happy: The governor of the Bank of England believes inflation has been pushed up by the introduction of tuition fees. This is a file picture of graduates

Bank critics, however, accused Sir Mervyn and the Monetary Policy Committee of ‘an abdication of responsibility’ for allowing inflation to spiral above the 2 per cent target for so long. It was last below target in November 2009.
David Ruffley, a Tory member of the Treasury Select Committee, said: ‘This is a quite extraordinary intervention. It is the Bank of England’s job, when setting interest rates, to hit a 2 per cent inflation target, to take account of precisely items like tuition fees and green taxes. It’s fundamental to the MPC forecast.’
Sir Mervyn’s dramatic intervention came just months before he hands over the reins to Mark Carney, the Governor of the Bank of Canada, in July. ‘The UK economy is set for a recovery,’ said Sir Mervyn.

Surprised: David Ruffley, a Tory member of the Treasury Select Committee, said Sir Mervyn's comments were a 'quite extraordinary intervention'

‘That is not to say the road ahead will be smooth. This hasn’t been a normal recession and it won’t be a normal recovery.’
The report forecast inflation to rise from its current level of 2.7 per cent to above 3 per cent in the coming months, eating into household budgets.
Sir Mervyn said tuition fees, rail fares and utility bills added around one percentage point to inflation at the end of last year and will do so throughout 2013 and 2014.
‘It’s a bit of an own goal because it looks as if inflation is worse without any change in the underlying economy,’ he said. ‘It is a bit of a self-inflicted goal in terms of the damage done to real take-home pay.’
The inflation report warned that the higher cost of education would add 0.3 percentage points to inflation in 2013 and again in 2014.
Electricity and gas bills are expected to add 0.3 percentage points while other ‘regulated and administrative’ prices, including rail fares, water, and taxes on air travel, alcohol, tobacco and fuel, would add 0.4 percentage points.
The Governor said the increase in these prices made ‘the challenge of bringing inflation back to 2 per cent more difficult’.
But he warned that raising interest rates to curb rising prices ‘would risk derailing the recovery’.
A Treasury spokesman said: ‘Government has taken continued action to help with the cost of living, by freezing fuel duty for more than two years and also taking action to freeze council tax.’