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The Governor says …

Living costs up and wages down – it’s not a recipe for a very happy life. I paraphrase Mervyn King, Governor of the Bank of England, who, speaking in Newcastle, has issued a stark warning about the accelerating cost of living.

He said: ‘CPI inflation was 3.7% at the end of last year, and... is likely to rise to somewhere between 4% and 5% over the next few months, before falling back next year.’

He continued by pointing out that because of spiraling inflation, spending power has not risen for the longest period in nearly a century.

‘In 2011 real wages are likely to be no higher than they were in 2005. One has to go back to the 1920s to find a time when real wages fell over a six-year period,’ he said.

But the man they call the Governor spies a way out, seeing a better future for the economy and indicating support for the Coalition’s fiscal policies.

‘The UK economy is well-placed to return to sustained, balanced growth over the next few years as a result of a fall in the real exchange rate combined with a credible medium-term path of fiscal consolidation,’ he said.

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