King – a “slow and protracted recovery” is the best we can expect

In the Bank of England’s annual report to lawmakers today, Mervyn King said the economy is poised for “a slow recovery and annual inflation is likely to remain above its 2% target for some time… The global economic outlook is also poor”, he added.

“With surplus countries reluctant to expand domestic demand and deficit countries restraining domestic spending to reduce their debt ratios, we have a recipe for weak global growth. Such an outlook poses real challenges for our strategy of rebalancing the U.K. economy,” Mr. King said.

“It may be unreasonable to expect anything other than a slow and protracted recovery absent a further fall in the real exchange rate.” It seems King is determined to give the pound one last kick before he departs next year (not before time in our opinion with him being overwhelmed by the financial crisis and shockingly ineffectual during the last 4 years) and stick one on the eye of British holidaymakers.

The governor voted to maintain the size of the U.K.’s bond-buying stimulus program at 375 billion pounds ($601 billion) at the rate-setting Monetary Policy Committee’s November policy meeting. Mr. King said he stands ready to adjust policy in either direction should circumstances demand it.

Mr. King retires from his post at the end of June and the U.K. government said Monday he will be succeeded by Mark Carney, governor of the Bank of Canada.