King: Deficit must be cut more rapidly

BRITAIN&rsquo;S next government will need a credible plan to reduce the country&rsquo;s structural deficit over the lifetime of just one parliamentary term, Bank of England governor Mervyn King warned yesterday.<br /><br />Testifying in front of the Treasury Select Committee, King said: &ldquo;I don&rsquo;t think there&rsquo;s any immediate risk, but the longer there isn&rsquo;t a credible plan that sets out what action will be taken, the more that is a risk.&rdquo;<br /><br />King&rsquo;s call to &ldquo;eliminate a large part of the UK&rsquo;s structural deficit&rdquo; over the next five years goes much further than the Treasury&rsquo;s current plan &ndash; announced last week &ndash; to halve the headline deficit over four years.<br /><br />While King was quite clear on the need for the next government to address the structural deficit, he was less clear on what lies ahead for monetary policy and kept all of the Bank&rsquo;s policy options open. <br /><br />He denied the suggestion that the three-way split on the decision earlier this month to extend quantitative easing (QE) was evidence that the Monetary Policy Committee (MPC) did not know what it was doing. <br /><br />&ldquo;It&rsquo;s not surprising when you&rsquo;re at a turning point that you get differences of view,&rdquo; he said. <br /><br />The minutes of the meeting published last week showed that seven members had voted for an increase of &pound;25bn, one had voted for a greater increase and one for no rise at all. <br /><br />King also indicated that February would be the most likely time for any change to the QE programme. <br /><br />He said: &ldquo;We have a programme of asset purchases which we announced as a programme for three months so I think there&rsquo;s some presumption that we will take this programme to the end of January and think again at the February inflation report and MPC meeting.&rdquo; The City is widely expecting the MPC to remain on hold until February. <br />