Mervyn King and PM at odds over economy rescue

Mervyn King, the normally reticent Governor of the Bank of England - at least when it comes to telling the Government how to behave - has caused a stir by warning Gordon Brown not to blow any more cash on a further "fiscal stimulus" because the country is already too deep in debt.

Ahead of the Budget on April 22, King said public finance deficits were already too high for the Chancellor, Alistair Darling, to allow tax cuts or public spending increases.

King's warning, issued yesterday, is highly controversial because it appears to break the convention that the Bank chief never questions Government policy - certainly not in public. The timing was significant too, coming just as Gordon Brown addressed the EU Parliament in Strasbourg to call for "the biggest fiscal stimulus the world has ever seen".

The Conservatives, who have repeatedly warned about the size of the national debt, called King's intervention a "defining moment in the political argument on the recession".

The Treasury, however, said it was "relaxed" about King's comments. This could be because the Chancellor himself privately agrees with the Bank Governor: Darling is well known to have been trying to resist the PM's enthusiasm for a second stimulus to encourage consumer spending.

King was in convention-busting mood yesterday: he also enjoyed an audience with the Queen at Buckingham Palace, the first time in her reign that she has met a Bank of England Governor. To the frustration of the London media, precise details of their conversation were not made available, but at least it gave them the headline 'King meets Queen'.

WHAT THEY ARE SAYING
Leading article, Times: Mr King was... right and timely in his message. The recession needs to be countered by radical measures to stimulate demand. But monetary policy must be the principal means of stabilising the economy. Fiscal profligacy by the Government since well before the last election has sharply constrained the ability of UK policymakers to borrow and spend more. Mr King's cautionary words are nuanced and devoid of drama. But they are a cogent critique of failure, which the Government must now heed.

Patrick Wintour, Guardian: Alistair Darling has been discreetly arguing that the economy simply cannot risk any more state borrowing and that much of the £20bn stimulus in the pre-Budget report in November, notably the cut to VAT, has yet to work through. King's remarks to the Treasury select committee will simply shore up the Treasury's position... But Brown will be angry that his options have been closed down by the Bank governor, and may even feel that King has strayed beyond his remit. It leaves him with few options in next month's budget, except extra help for savers and some targeted measures to help the unemployed.