Bank of England sees public support slump to 7 year low

by Richard Kilner

Story link: Bank of England sees public support slump to 7 year low

According to the Bank of England’s most recent monthly survey, public confidence in the institution is the lowest it has been for seven years.

The news adds to the pressure mounting on Mervyn King, the bank’s governor.

The downturn in public confidence is presumed to be indicative of the public’s response to the bank’s management of recent serious events, not least of which is the Northern Rock crisis and the credit crunch.

King will be questioned by MPs next week, though he is not the only man facing difficulties. His deputy, Sir John Gieve, is in charge of financial stability and rumours abound that some political quarters wish to see him resign over the Northern Rock fiasco.

The bank is in a difficult situation at present, with a predicted downturn in the British economy expected in 2008 and rising public anxiety regarding inflation. These twin problems will pose a tough dilemma for the Monetary Policy Committee, when they next meet to decide whether to cut or raise interest rates.

Less than half of those questioned in the survey (48%) believe that the bank was doing its job of setting interest rates to control inflation properly. Those who were dissatisfied accounted for 17% of respondents, giving the bank a meagre approval rating of 31%.

Another concerning result yielded by the survey was the revelation that the public perception of present inflation and its future level was the highest since the late 1990s.

The actual inflation of the consumer price index is only a tenth of a percent higher than the bank’s 2% target, though those questioned gave an average inflation figure of 3.2%.

The level of inflation predicted for the future by survey respondents was 3%. This is particularly worrying for the bank’s Monetary Policy Committee, as controlling inflation is one of its most important duties.

The committee fears that a belief in higher interest rates will lead to higher wage demands and thus higher prices, making the belief a self-fulfilling prophecy.

However, expectations regarding economic growth have also declined, leading to calls for lower interest rates. The bank’s choice is difficult because lower rates may boost growth, but risk inflation.