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BoE can respond if British economy falters - King.

Britain's central bank stands ready to act if the economic recovery turns out to be weaker than expected, Bank of England Governor Mervyn King told trade unions in a speech on Wednesday.

King made no specific policy comment on inflation, which has been above the BoE's 2% target since December 2009, indicating that the central bank is currently more worried about the risks facing Britain's fledgling economic recovery.

"If the recovery is slower than expected then the automatic fiscal stabilisers -- the lower tax receipts and higher spending that result from weaker growth -- will act to stimulate demand," King said.

"And monetary policy can react too, especially when there is a credible plan to reduce the deficit," he told the Trades Union Congress (TUC), the umbrella group for British unions.

King's silence on inflation contrasts with comments from BoE colleague David Miles in a regional newspaper.

"I am particularly concerned about inflationary pressures, since it is our job to keep the rate close to the 2% target and it is uncomfortably above that at present," Miles told Wednesday's East Anglian Daily Times.

Inflation has remained stubbornly high in recent months, but Miles stuck to the central bank's main forecast that price pressures will probably ease next year, as did new policymaker Martin Weale when he addressed legislators on Tuesday.

Economists said King's speech reinforced their view that the BoE would not raise interest rates until well into 2011.

The union movement is worried that the Conservative-Liberal Democrat coalition's plan to cut the record budget deficit is too severe and will derail the recovery.

The number of people out of work and claiming benefits rose for the first time since January, data on Wednesday showed, in a sign that the labour market recovery may already have peaked.

But King said that it was necessary for the government to cut the deficit and that the rate of the planned reduction was not as harsh as in some other countries.

"There is a further question about how the deficit should be reduced -- the balance between raising taxes and cutting spending," he said. "That is not for me to say; that is for you and the politicians to debate."

Unions have threatened the government with civil disobedience and co-ordinated strike action unless it changes tack. Several delegates held up placards denouncing the cuts during the speech.

Still, King sympathised with union rage about the role of highly paid bankers in the financial crisis, the bailout of banks and the impact the credit crunch had on the wider economy.

"Your members, and indeed the businesses which employ them, are entitled to be angry," he said.

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Publication:Financial Mirror (Cyprus)
Date:Sep 15, 2010
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