The Governor of the Bank of England laid bare tensions between Gordon Brown and the Treasury yesterday by warning that Britain could not afford a second economic stimulus in the Budget.
Mervyn King threw caution to the wind as he sided with Alistair Darling and the CBI against Downing Street in raising strong doubts over any prospect of another round of “significant fiscal expansion” next month.
King spoke as the Prime Minister, beginning an international tour to co-ordinate measures for next week’s G20 gathering in London, called on leaders to do "whatever it takes to create growth and the jobs we need."
President Obama, Brown’s main stimulus ally, writes in the same vein in The Times today, saying that America is ready to lead the world out of recession, while calling for swift and robust action to stimulate growth "until growth is restored."
No 10 and the Treasury deny any split but ministers admit that Brown is keener than his Chancellor to go for further expansionist Budget measures on April 22.
Darling said two weeks ago that a fiscal stimulus “has now been widely agreed but now needs to be implemented”, hinting that he believes a second boost is unnecessary and unwise. There have been no similar signals from No 10.
Bank governors do not normally talk about Budgets in advance, just as ministers do not comment in advance about Bank decisions on interest rates. The conclusion drawn from the unusual intervention of King, who met the Queen yesterday in her first audience with a Bank governor, was that he was backing the Treasury in resisting pressure for a further stimulus. It seems certain that his already strained relations with No 10 will hit a new low.
Brown told the European Parliament in Strasbourg: "I believe that we are seeing the biggest cut in interest rates the world has ever seen and seeing implemented the biggest fiscal stimulus the world has ever agreed."