The governor of the Bank of England, Mervyn King, has supported new coalition government's plans to make huge spending cuts.
Conservative Prime Minister David Cameron has discussed plans with his Liberal Democrat coalition partners to impose 6 billion pounds in spending cuts this year.
Presenting the Bank’s quarterly inflation report, Mr. King said that fiscal deficit was the most important challenge to the new government. He added that market expected the new government to take decisive steps to control fiscal deficit.
Speaking about the planned spending cuts, Mr. King said, “I think they are desirable to remove the risk of an adverse market reaction."
In the quarterly inflation report, Mr. King said that prices were expected to rise faster than the official target of 2 per cent in the near future, however, they would fall back to near official target next year. The policies formulated by the new government were not taken into account while estimating the inflation rate.
But, he warned that risks to an economic recovery remained grave and suggested that global action was required to save world economy from ending up in downturn.