Bank boss 'too close' to coalition

The governor of the Bank of England has been criticised by shadow chancellor Ed Balls for getting “drawn into the political arena” over the Government’s deficit-reduction strategy.

Mr Balls warned in an interview with the Financial Times that Mervyn King was risking the Bank’s reputation by associating himself too closely with the coalition’s approach.

“The last thing you ever want is for the Bank of England to be drawn into the political arena,” he said.

He continued: “Central bank governors have to be very careful about tying themselves too closely to fiscal strategies, especially when they are extreme and are making their job on monetary policy more complicated.”

Mr Balls was Gordon Brown’s closest adviser when the then chancellor granted the Bank’s independence in 1997.

Labour’s criticism of the pace and scale of the coalition’s plans has been undermined by Mr King’s perceived support for the Government’s approach of wiping out the structural deficit within this parliament.

The governor was thought to have reservations about former Labour chancellor Alistair Darling’s strategy to halve the deficit over four years and has indicated his broad backing for George Osborne’s tougher line.

But Mr Balls accused the Chancellor of making the “fatal error” of drawing up a fiscal strategy to suit his political aims.

The shadow chancellor, who is often portrayed as being to the Left of most Labour frontbenchers, insisted he appreciated the importance of understanding aspiration.

“That fundamental insight – that you could spend money well and be on the side of people who want to get on – if we lose those insights we will be out of power for a generation,” he said.