Mervyn King yesterday warned the government it could not afford a second fiscal stimulus in next month’s Budget in a rare public attempt to ward off budgetary recklessness.
'There is no doubt that we are facing very large fiscal deficits over the next two to three years,' the Bank of England governor said. 'I think the fiscal position in the UK is not one where we could say, well, why don’t we just engage in another significant round of fiscal expansion.'
His comments will limit Gordon Brown’s room for manoeuvre ahead of next week’s Group of 20 summit in London, but are likely to be welcomed at the Treasury, where officials have become increasingly nervous about the weak state of the public finances.
King has always followed the Bank convention of not talking about the public finances because officials had always assumed the government would stick to its fiscal rules limiting the size of government borrowing and debt. But since those rules were ditched last year as the recession took its toll on tax revenues, Bank officials said King felt the need to speak out.