BoE´s King Gives Inflation Report News Conference

Fall back in actual inflation hasn't yet been mirrored in a fall back in inflation expectations.

Below are highlights from Bank of England Governor Mervyn King's news conference after the central bank's quarterly Inflation Report on Wednesday.

FROM Q&A SESSION

DID KING CONSIDER RESIGNING OVER NORTHERN ROCK CRISIS?

"No."

KING ON BANKS' LOSSES

"I would urge everyone to see the losses in the context of past profits and the capital cushion of the banks. The big five banks have made over the past few years about 100 billion pounds of profits. Now for much of the past three years you and your colleagues have been lambasting them for making fertile profits: and I'm not here to disagree with you, but I would point out that if ever there was a moment when it was helpful for banks to have made large profits it must be now. They will provide the cushion which guarantees the stability of the banking system and it is strong and stable."

KING ON SECOND ROUND INFLATION EFFECTS

"I think it's rather too early to judge because inflation expectations that did rise ... have not fallen back so we have not been through enough experience to judge that.

"Here we are faced with energy shocks almost every quarter... So there's a whole sequence of shocks which are occurring and the level of oil and commodity prices is still markedly higher than it was in the past.

"So it's much too soon to be confident that the shocks are over, let alone that we've actually seen the full working through of the impact of that on domestically-generated inflation."

ON MONEY MARKET

"Other central banks are also grappling with it. Overall, we will be looking at our money market operations, but we feel they work extremely well."

ON CURRENCIES

"The difficulty with the world economic system at present is that a number of G7 economies have flexible exchange rates and those are moving; others, like China, link theirs to the dollar and that's causing great currency tensions. I came away from the IMF meeting more concerned about these tensions."

ON EQUITY MARKETS

"The other risk which is out there is the repricing of risk we have talked about for some considerable time hasn't really fed through to markets such as equity markets and if there were to be an adjustment of risk premia in equity markets with a fall in asset prices then that could have a bigger impact on the world economy."

"It's very striking that despite developments we've seen in the last three months, equity prices are on average higher now than they were in August. This is true around the world and in emerging markets they're 20 percent higher: There must be some downside risks there. That's factored into our projections. That's the bigger risk to the global economy."

REAPPOINTMENT QUESTION

"This can wait until the new year and I think it should."

STAGFLATION

"It's not a word I intend to use."

TRADE

"At some point I very much hope that we will see a a positive contribution to growth because that will be necessary in order to reduce the trade deficit which has now risen again in the latest quarterly data.

"Though I think one has to be very cautious before attaching much weight even to quarterly data on trade. The figures are very difficult to interpret and pretty volatile. So I don't think I regard the UK as being particularly exposed."

KING: HOUSING MARKET NEEDED TO SLOW

"We're seeing now quite a significant impact in terms of surveys on the housing market. In some ways we needed to get away from the period when we saw double-digit growth. We needed a cooling in the housing market: how far it goes remains to be seen."

"Much of the growth in consumer spending between 1997 and 2003/04 was based more rapid growth in real disposable income. That was supported by an improvement in the terms of trade. They are no longer moving in our favour.

"There will be an adjustment of saving rates in which tighter credit conditions will lead households to raise saving ratios; growth both in consumer spending and output can return to more normal levels, not go back to the heady highs of the 2000s but something closer to the longer run rate of GDP."

NO LONG TERM EFFECTS FROM N.ROCK CRISIS.

"No, I don't because the underlying structures are sound." King described the current climate as "febrile", but said: "Once we get through that people will look back and realise the structures are sound and the economy will come through as the central projection suggests. What we have is a picture of slowing of growth in the short run and a rise in inflation but looking further ahead, growth returns to its average rate and inflation returns to an average rate and the committee will ensure that happens."

KING ON IMPACT OF CREDIT CRUNCH ON ECONOMY

"We wanted to see how this really was going to feed through into activity. We expected a slowing but is the slowing we are going to see bigger than we had wanted to see?"

KING ON INFLATION, INFLATION EXPECTATIONS

"We've seen some upside movement in inflation and there are in the short term expectations -- the central projection has inflation rising over the next few months to a year before coming back.

"We haven't yet seen inflation expectations fall back as we might have hoped when actual inflation fell back from the figure of 3.1 percent in March. The fall back in actual inflation hasn't yet been mirrored in a fall back in inflation expectations and that was bound to make the Committee cautious."

KING ON OUTLOOK, DATA

"Trying to describe the outlook in terms of adjectives is less helpful than in terms of numbers. It's a matter of data, not a matter of time."