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Britain is "navigating through turbulent waters", says Mervyn King

The Bank of England governor warns of a "storm heading our way" from Europe, as CPI inflation remain

The consumer prices index (CPI) inflation was 3.5 per cent in March, down from a peak of 5.2 per cent in September 2011, according to the Bank of England's May Inflation Report.

Global growth remained uneven. Output in the eurozone contracted in the fourth quarter of last year; business surveys indicate a further fall in first quarter of 2012.

The Bank warns that inflation is likely to remain above the 2 per cent target for the next year or so.

In a speech accompanying the report, the Bank’s governor, Mervyn King, said:

Weak growth and high inflation have been the unavoidable consequences of the financial crisis, developments in global commodity prices, and the need to rebalance our economy. The biggest risk to the recovery stems from the difficulties facing the euro area, our main trading partner.

At 3.5 per cent in March, CPI inflation remains well above the 2 per cent target. That largely reflects past increases in energy and import prices. In contrast, low rates of wage increases have ensured that domestic cost pressures are subdued.

The choice facing the MPC continues to be a difficult one. And the task is made harder by the degree of uncertainty about the paths that output and inflation will follow. But the big picture is clear and hasn’t changed since February. We are navigating through turbulent waters, with the risk of a storm heading our way from the continent.

Since February's inflation report, the Bank’s Monetary Policy Committee (MPC) has maintained bank rate at 0.5 per cent and the size of its asset-purchase programme at £325bn.

The Office for National Statistics (ONS) estimates that the UK’s economy shrank a little in both the first quarter of 2012 and the final quarter of 2011. Over the past year or so, two factors have hampered the recovery and rebalancing. First, higher-than-expected world commodity and energy prices have squeezed real take-home pay, dampening consumption growth. Second, credit conditions, far from easing, have in some cases become tighter.

The direct and indirect exposure of UK banks to the eurozone's periphery have affected funding costs as the challenges of tackling the indebtedness and lack of competitiveness in those countries have intensified.

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No, David Cameron’s speech was not “left wing”

Come on, guys.

There is a strange journalistic phenomenon that occurs when a party leader makes a speech. It is a blend of groupthink, relief, utter certainty, and online backslapping. It happened particularly quickly after David Cameron’s speech to Tory party conference today. A few pundits decided that – because he mentioned, like, diversity and social mobility – this was a centre-left speech. A leftwing speech, even. Or at least a clear grab for the liberal centre ground. And so that’s what everyone now believes. The analysis is decided. The commentary is written. Thank God for that.

Really? It’s quite easy, even as one of those nasty, wicked Tories, to mention that you actually don’t much like racism, and point out that you’d quite like poor children to get jobs, without moving onto Labour's "territory". Which normal person is in favour of discriminating against someone on the basis of race, or blocking opportunity on the basis of class? Of course he’s against that. He’s a politician operating in a liberal democracy. And this isn’t Ukip conference.

Looking at the whole package, it was actually quite a rightwing speech. It was a paean to defence – championing drones, protecting Britain from the evils of the world, and getting all excited about “launching the biggest aircraft carriers in our history”.

It was a festival of flagwaving guff about the British “character”, a celebration of shoehorning our history chronologically onto the curriculum, looking towards a “Greater Britain”, asking for more “national pride”. There was even a Bake Off pun.

He also deployed the illiberal device of inculcating a divide-and-rule fear of the “shadow of extremism – hanging over every single one of us”, informing us that children in UK madrassas are having their “heads filled with poison and their hearts filled with hate”, and saying Britain shouldn’t be “overwhelmed” with refugees, before quickly changing the subject to ousting Assad. How unashamedly centrist, of you, Mr Prime Minister.

Benefit cuts and a reduction of tax credits will mean the Prime Minister’s enthusiasm for “equality of opportunity, as opposed to equality of outcome” will be just that – with the outcome pretty bleak for those who end up losing any opportunity that comes with state support. And his excitement about diversity in his cabinet rings a little hollow the day following a tubthumping anti-immigration speech from his Home Secretary.

If this year's Tory conference wins the party votes, it’ll be because of its conservative commitment – not lefty love bombing.

Anoosh Chakelian is deputy web editor at the New Statesman.