King: UK recovery will be 'arduous' and hints at extra QE

Bank of England governor Mervyn King last night backed calls for limits on boardroom pay, in a speech in which he also said the UK's economic recovery would be "arduous" and hinted at a further round of quantitative easing.

Speaking last night in Brighton, King echoed similar calls from the coalition government, particularly business secretary Vince Cable's recent proposals to crack down on boardroom pay.

He said it was a "tragedy" that those who suffered most through the financial crisis had no part to play in it, while others had been excused as they were thought to be "too important to fail", a reference to the bailed-out banks.

"The legitimacy of a market economy will inevitably be challenged if rewards go disproportionately to a small elite, especially one which benefited from the support of taxpayers," he added.

"Those taking decisions on remuneration, in the financial sector and elsewhere, need to understand that a market economy rests not just on incentives, but on the acceptance that the distribution of rewards is fair.

"That sense of fairness underpins the commitment to a market economy. An even bigger tragedy would be to deny the prosperity that flows from a market economy to those who need it most."

Elsewhere in his speech, King reasserted his view that inflation would continue to go down this year, with the effect of the rise in VAT, import costs and energy prices waning.

However, he warned of three continuing challenges which would linger over 2012: tight credit conditions, higher household saving and the "dark clouds hanging over the world economy".

He added the economic recovery would be "arduous, long and uneven" and also hinted at the possibility of an expansion of the Bank's asset purchase programme to prevent inflation falling below the 2% target.