Gieve ‘sorry’ over Rock deal

Jun 20 2008 by Paul Gannon, Evening Gazette

THE OUTGOING deputy governor of the Bank of England told Tees Valley business leaders that he was “sorry” the Bank had not managed to broker a private rescue deal for Northern Rock.

Sir John Gieve was last night speaking in the failed lender’s heartland just hours after news that he was to resign early from his post as Bank of England boss Mervyn King’s right hand man hit the headlines.

He said he was surprised that his announcement had caused such “fantastic excitement”.

“It’s a great pleasure to be here and well away from London after a weird 24 hours for me,” he told bosses at the Durham Tees Valley North East Chamber of Commerce’s annual dinner at Hardwick Hall, Sedgefield.

Sir John, who is leaving his job as the top civil servant responsible for economic stability two years early, gave a downbeat but clear steer to business leaders on Britain’s immediate economic outlook.

He said a long period of zero inflation, helped by the rise in imported cheap goods from the tiger economies of Asia, had provided a “beneficial tailwind” for the economy, allowing it to run at a higher level of activity than would otherwise have been the case.

But now the winds had changed, Britain was heading into unchartered territory.

He said the fall in house prices, which he agreed would continue, would normally put downward inflationary pressures on the economy, leading to interest rate cuts. But global economic upheaval meant “the immediate prospect is for rising inflation”.

“We judge that in order for inflation to return to target (of 2%) it will be necessary for economic growth to slow this year, reducing the pressure on supply capacity,” he said.

And he called on employers to exercise wage restraint and resist calls for pay packets to match the rising cost of living.

He reassured his audience that the Bank of England’s new framework was “designed for difficult times as well as for plain sailing”.

Referring to the Northern Rock crisis, for which he took much of the punishment at a Parliamentary committee grilling last year, when he was accused of not doing his job properly, he said: “We did not run the bank or regulate it; we just tried to rescue it.

“I’m sorry we did not do that in the private sector but we did stop depositors losing their money. I think a lot of people learned a lot of lessons from that. I’m pleased it has led to new work on helping failing banks. Putting that in place is the key objective we have over the next year.”

Mr Gieve will step down in 2009. Yesterday, it was announced that Charlie Bean would join him as a fellow deputy governor.