Bond markets are sending signals that politicians are struggling to read. Former Bank of England governor Sir Mervyn King joins The Inside Brief with Manus Cranny from London to make sense of them, drawing on a 22-year career at the institution and a decade as governor during some of the most turbulent periods in modern financial history.
On the current state of UK gilt markets and rising long-term yields, Mr King argues that a 10-year bond yield of 5 per cent is not unusual in itself. What concerns him more is the deep political reluctance across major economies to put public debt on a sustainable path. The choice, he says, is straightforward: either cut spending or raise taxes.
On the oil shock, Mr King warns that the impact on inflation will be very different depending on whether the Middle East conflict lasts weeks, months or longer, and that central banks cannot yet know how much of it they can afford to look through. He draws on his own experience at the Bank of England after the financial crisis, when the institution looked through the biggest devaluation of sterling since the Second World War, and explains the conditions under which those judgments on interest rates were made.
In the conversation, Mr King also reflects on the City of London, the closeness of relationships between the world's major central banks, and the charity he cofounded in 2005, Chance to Shine, which has brought cricket into state schools and reached eight million children.
