voice-over: this is bbc news. we'll have the headlines and all the main news stories for you at the top of the hour, which is straight after this programme. welcome to hardtalk, i'm stephen sackur. the global economy has been hit by a series of unforeseen events — covid, russia's invasion of ukraine, the current sky—high tensions in the middle east, not to mention the impacts associated with long—term climate change. governments would like you to believe that poor economic performance, high inflation, low growth,

rising inequality can be blamed on external factors. but is that true, or are the wrong economic levers being pulled 7 well, my guest is former governor of the bank of england, mervyn king. does economic orthodoxy need rethinking? mervyn, lord king, welcome to hardtalk. thank you. pleasure to be on your show. it's great to have you here. as we look around the world, we see heightened global tension, uncertainty, conflict in so many different arenas. does that mean that for you, there are many reasons to be fearful about the impacts of geopolitics

on the global economy? yes is the simple answer. i think we thought about the russian invasion of ukraine, we thought that was a contained conflict. now we see in the middle east. the more you fight, if this extends beyond gaza — two major areas of conflict makes it much more likely that a third will occur. who knows? the chinese blockade of taiwan, perhaps. all of this is going to put enormous strain on the ability of the united states in particular, but also of europe, to provide the financial support, or support in terms of military equipment, to enable ukraine to resist russia, to bring about some kind of end to hostilities in the middle east, and to prevent any blockade of china becoming much more serious. all of which has very obvious economic fallouts.

now, so far, the conflict in gaza has not led to significant changes in energy or commodity prices, it seems to have been contained, but that may not survive, we just do not know. so there is, as you said, enormous uncertainty. the boss ofjp morgan, jamie dimon, who's sometimes seen as one of the kings of wall street, he said just the other day, "the world may be facing the most dangerous "time in many decades." now, i'm mindfulthat as governor of the bank of england, you carried the bank through the storms associated with the global financial meltdown of 2008. butjust in terms of your gut, are you feeling equally, maybe even more anxious, more worried today? well, certainly more uncertain. the financial crisis was a crisis of the western banking system, so we knew where the problems were. more of a mechanical crisis, in a way? yes. once we decided to recapitalise the banking system and persuaded governments to do it,

then the banking crisis ended. it still led to an economic recession, but we knew that would come to an end. this is much more uncertain and dangerous. you know, the only time i can think in my lifetime when there's been so much fear was the cuban missile crisis. but of course, that just had two actors, well—defined geographically. and once the two sides talked to each other, an end was brought about. this is much more complicated. you've been an economist all your life. it strikes me that in times like these, economic forecasts and then the governmental economic plans that are drawn up based on those forecasts, they're arguably not really worth the paper they're written on. i agree. i think actually in most circumstances, they're probably not worth the paper they're written on. but you're part of a business which spends all of its time second—guessing what's going to happen next and then drawing up strategies to sort of fine—tune government policies to make sense.

i don't think that's how economic policy should be made. we can't forecast the future. so when people say, you know, "gdp forecast for next "year is 2.2%," it's a meaningless number. there's too much uncertainty. the role of economics is to help you think through the problem and identify the big risks that we face so that governments can put in place mitigating solutions to them. we can't change the uncertainty that's there, but we can try and cope with it better. so coping with it is the key. the trouble at present is that there are so many areas of uncertainty, it's very difficult to think of any simple strategy that will enable governments to cope. but we can perhaps learn useful lessons from the recent past. you've been very vociferous in your commentary on how you think yourformer institution, the bank of england, plus the government, dealt with the covid crisis here in the united kingdom. you've made it pretty plain that you think very serious mistakes were made, and that in the middle

of what was a massive economic disruption, you think the policymakers got it wrong. what i would say, it isn'tjust the bank of england, it's the federal reserve made even bigger mistakes, and the european central bank did, too. so when covid hit, governments, i think sensibly, decided they would have a furlough scheme — this was common in europe — or provide more generous unemployment insurance, as they did in the united states. they tried to find different ways to boost the economy at a time when massive disruption was slowing the economy right down. but boosting it wasn't the right thing to do. keeping firms and workers linked together when they temporarily could not work with each other because of lockdown was the reason for furlough schemes. but what happened with the lockdowns, and also with people deciding it was too risky to go to work, was that the ability of the economy to produce was contracting. the worst thing you can do in those circumstances is to expand demand,

because once demand exceeds supply in the economy, you'll get inflation. now, this came out not from central banks themselves, but from the academic world, economics profession, rather deluded itself into thinking that inflation had nothing at all to do with money. and this is a very odd view, because you may not be able to control inflation precisely by fine—tuning, but you know that if you print too much money — and the americans in particular, were printing an extra 25% in one year — then you ought to ask the question, "well, "what does this tell us?" you're very old—school. i'm mindful of economists from the fairly recent past, like milton friedman, who tied monetary policy, and tight monetary policy, very directly to control of inflation. you're still of that school? no, i think he made two big mistakes. one was to think that you could fine—tune the economy by controlling the money supply so it grew at sort of 5% a year every year. that, you can't do.

and he put too much emphasis on what was called the narrow measure of money rather than the amount of money that you and i have in our bank accounts and companies have in their bank accounts. what i'm saying is, if you find that the amount of money in the economy is growing very rapidly, orfalling significantly, you should ask yourself the question, maybe there is a risk here. but i guess the corollary of what you are saying is that the inflation we've seen around the world, rising in the uk in the not too distant pastjust a few months ago to ii%, it's coming down now, but it did reach ii%, which was unheard of in the last couple of decades. 30 years. yeah. so you're saying that that, and inflation that we saw spiking across europe and in the us, although again it's come down now, all of that can be laid at the door of a groupthink which has taken over central banks, taken over the economists' industry that you're a part of. it's a part of it. some of it was clearly the result of higher commodity

prices around the world, but that would have been a fairly short—term factor. the mistake that was made, many people in 2020 said, "doesn't matter if we print lots of money, we won't need "to raise interest rates to bring inflation down." what we've seen is, you do need to raise interest rates a lot to bring inflation down. that's why it's come down. not all of the rise... sorry to interrupt, but this is going to matter to an awful lot of people watching in the uk and around the world. you need to raise those interest rates to bring inflation down. the question is how long you need to keep them high. let's not forget, every time interest rates rise, millions of ordinary people, particularly those who have mortgages in the uk and other parts of the world, who are really suffering, feeling the pain. so two points i'd make on that. one is central banks have done a lot, and they may well have done enough. the amount of money in the economy is now falling in the united states and in europe and in the united kingdom.

that means that there is a risk now that central banks may keep rates too high for too long. it's not certain by any means, and i'm not saying that's definitely the case. but would you be an advocate of bringing them down fairly sharpish? well, not now, but maybe next year, we'll have to wait and see. i think one of the big mistakes that's been made is for central banks and others to pretend that it's sensible to make forecasts of where interest rates will be next year. we don't know. it depends what happens. so i think a lot has been done, and that's actually very important. what explains the disparity in performance between, for example, the uk and the united states? the last quarterly growth figures from the united states were pretty stunning. i think it came out at li.9% growth. it seems to be steaming, the us economy. well... hang on. but at the same time, the uk economy, according to different estimates from the imf, oecd and the bank of england, is basically flat—lining and will flatline for the next 12 months.

so we don't know what will happen in the united states next year. the us printed so much money and had such a large fiscal expansion in 2020—21 that they are still seeing the effects of that come through. it is quite conceivable that if things carry on, the us will slow sharply next year. but surely the point is the us sort of has this pretty golden combination of an inflation rate that never hit the heights of the uk and is now down at 3.9% or so. and it has what seems to be a very impressive growth rate, and at the same time, according to your explanation of what went wrong and the loosening of monetary policy far too much, the us should be in deep trouble, but it's not. it's got one problem we have to some extent, but nowhere near as large as the united states — massive budget deficits, rising national debt, and they have no plan to deal with it. the problems facing the us are still to come in the next few years, and they are still benefiting from a very large fiscal expansion that the biden administration put in place.

they printed very large amounts of money. i think in the uk we will see falls in inflation over the next few months and, it's impossible to judge now what will need to be done next year. but my guess is this comparison between the us and the uk will look very different a year from now. how much does china matter in all of this? our conversation so far has been about policy and about data based in the g7 and the rich western economies. but of course, china is a huge player, too, in the world economy and we don't really know where the chinese economy is going next in terms of growth. how much does that uncertainty factor into this? it's clearly relevant to thinking about how fast the world economy is going to grow. i don't think china is going to go back to the very high growth rates that it had over the last 20 years. they've got to get used now to a more slowly expanding economy. they need to shift

the structure of growth away from exports towards domestic demand. that will require a change in policies in china. hard to know when and under what circumstances they will do that. what we've seen is, the big, big change in 20 years is that when china joined the world trade system, the us and the west and china thought that this was going to be a rosy period of cooperation. what you now see is that it's changed into a system of almost a cold war in which the us wants to ban certain exports to china. china is facing tariffs on its exports. possibly much bigger tariffs if donald trump went back into power. who knows what donald trump would do if he were to become president again? he's very unpredictable. but in a sense, trump is a signifier of a wider trend toward more economic nationalism. i want a big thought from you about this, cos you were governor of the bank of england

at a time in the early 2000s, this sort of golden, rosy time, and belief in ever—greater openness, free trade, economic collaboration, internationalised supply chains, all of that's over. let me quote to you pierre—olivier gourinchas, the imf chief economist. not so long ago, he said the world is fragmenting into, quote, "distinct economic blocs with different ideologies, "political systems, technology standards, "cross—border payment and trade systems and "reserve currencies." i put it to you that in this era of new bloc—based nationalistic economics, it was a grave mistake for you to support britain leaving the biggest economic bloc of them all, the european union. well, i didn't support it, i took no part in the referendum campaign. what i said in the campaign was that the arguments on both

sides were misleading. and after the campaign was over and the result was announced, i was pretty shocked by the way it was handled. i said that the mistake that people are making... but you did talk about the huge opportunities that opened up for britain as a result of leaving the eu, you said even leaving the customs union and the single market could be good because of all these bilateral trade deals we were going to strike. no, i didn't say we'd be better off. my view about it is that when we look back on brexit 20 years from now, we will say it wasn't actually such a big deal economically. it's a political issue. and there were arguments on both sides. sure. but the political context we've just agreed, or you seem to be telling me, is a political context of these blocs, much less collaboration and cooperation across the international economy, and therefore, surely there was a security for the united kingdom being in the biggest economic bloc of them all, which we've nowjust lost. no. i agree completely with the proposition that we're going to a fragmented world, and that is a risky and very

uncertain position. it's more risky when you're on your own. but the question of whether we should be in a particular club depends on where that club is going. and what we've seen is, and mario draghi repeated this very recently, that unless the european union turns itself into a political union, then it will not continue to exist in its current form. there is no support in britain across any part of the political spectrum for the uk to be part of a political union where taxes and spending are decided at the centre. the thing that was missing from our campaign was the question, where is the eu going? it was entirely focused on us. that's una nswerable. but what is clearly... it's not una nswerable. ..factual is what has happened since we actually left. i don't know whether you doubt this data, but the office for budget responsibility reckons the evidence points to a long—run loss to the uk

economy in gdp terms of around li% as a result of leaving the eu. they say that exports and imports will be around 15% lower in the long run than if the uk had remained inside the eu. is it time for people like you, influential economists, to say, "yes, leaving the eu has been very damaging"? no, because we left in january 2020. within a few weeks, we had a global pandemic. then russia invaded ukraine. nothing you've seen in the data since then tells you anything about brexit, it tells you about what's happening in the world economy as a result of those two major events. maybe those numbers are right, maybe they're wrong, but i don't think there's any sound basis for making them.

but you can look at comparators in the eu. you can look at the way in which, for example, the city of london seems to have been damaged by brexit because manyjobs that were in the city of london, financejobs, have gone to paris, gone to dublin, gone to frankfurt. some have, but farfewer than the people who argued that this will be a disaster claimed. we haven't lost that manyjobs. we perform better than the german economy, which is regarded as the leader in the eu. i think this is a time for greater humility in making these statements. i'm not arguing that leaving the eu is going to be a great economic opportunity, but i am saying also that it's not obvious that it's an economic disaster. final thought on it. if you continue to look at data which points to real damage being done by brexit, could there come a time when you as an economist would say we really need to consider whether it would be in britain's interest to rejoin? that would depend entirely on the terms under which we would have to accept if we were to rejoin. i think a big mistake would be for us to join the monetary union. that would be the mistake. if the eu were to say, "the uk

will have to join the monetary union if you want to come back in," or if we had to pay the cost of supporting the monetary union, the answer is no, it would not be sensible to do that. we weren't in the monetary union when we left, so clearly, at that time we didn't have to be in the monetary union. whether we would be in the future is another matter. but the cost of supporting the monetary union would have been something we had to share. let's move on, because i want to ask you a broad—canvas question about central banks and economic policymakers and whether they need to consider a wider canvas when it comes to policy—making. you've focused in this interview very closely and carefully on the money supply, and that being a number—one priority for a central bank. but what about climate change? what about the rise of inequality in economies across the world? should those be factors which are considered by central bankers? no. the issues are very important. climate change is very important. inequality is very important. they are matters

for government. they're matters for treasuries to devise and implement policies on, they're not for central banks. central banks can do nothing about climate change. this is something where governments want to give the responsibility to somebody else and not take the difficult measures themselves. mark carney, another former governor of the bank of england, completely disagrees with you. he does. but i disagree with him on this, and i agree with jay powell, the federal reserve, that, actually, give me one example of something that central banks can do effectively. why do you think so many bankers and people who think about what banks should do disagree? just thinking about the big picture, christine lagarde, who runs the european central bank, she described the climate crisis as mission critical to what the ecb does. she clearly believes there are levers that a central bank can pull that are relevant to getting us to where we need to be in terms of transitioning our economy. well, she hasn't used any levers to help the cause against climate change.

she is a politician, her background as a politician. the number—two at the ecb is a politician. i think it's a terrible mistake for central banks to start to do things which they're doing for political reasons to enhance maybe their own popularity, but not because they actually have a mission to do it. central banks have one very important role with two focuses. one is monetary stability and low inflation, and the other is stability of the financial system. that's a big enoughjob. so when we look at the data on inequality, which appears to be worsening in a general sense around the world. you know the figures, richest 10% of the global population taking now 52% of global income, the poorest half of the world population getting just 8.5% of it. billions of people facing terrible hardship, while the number of billionaires has, and i'm looking at the figures, doubled in the last ten years. are you saying that central banks cannot afford to think about that, should just ignore that context when they make their decisions?

they can't set the tax system or deal with redistribution in terms of benefits to people at the bottom. that's for government, very clearly. what central banks can do is say, "let's create an economy in which people don't even think about inflation, they can get on with their businesses, theirjobs, running theirfamilies, without worrying about inflation. " this is a massively important contribution. you look at the countries like venezuela or zimbabwe, where people have been shocked by the inflation rate. that's what brings about poverty in many cases. there's a limit to what central banks can do. interesting, though, that some people who think about this think, actually, the case for having completely sort of pure central banks that are ring—fenced from politics and are kept truly independent, in that case is weakening. larry summers says very much that. even ed balls, who was one of the architects of the labour government declaring the independence of the bank of england, he has said that case is less strong today

than it was 20 years ago. but neither are advocating the end of independence. what they are advocating is that central banks stick to their basic remit. we'd do better, i think, to go back to the role of the bank of england that ed balls and gordon brown gave it in 1997. once you start to think, you know, we're very successful, what else can we look around to do and how can we enhance our own reputation, you take your eye off the ball of the one thing that you can actually influence, which is inflation. simple question. most people, when they think about economics, want one simple thing — they want to believe, they want to have confidence that their children will be better off, have a better standard of living than they have enjoyed themselves. do you think we can have that confidence looking forward from today? yes. and the answer to it is not to believe that you can suddenly increase economic growth over a year or two. that was the mistake, i think,

of the truss administration. what we have to do is to be prepared to tackle the big questions, including reducing the debt burden that we're bequeathing to our grandchildren, and start to take measures to improve the performance of the economy that may take ten, 20 years to come into effect. but if we don't start today, it won't happen. truly responsible long—term thinking, that's what you're calling for. absolutely. and do you see it? not at present. i think the only solution to it is that if you think of many of the problems that we face, the size of our debt burden, the national health service, health care costs in general, the structure of our pension system, which in britain has collapsed in the last 20 years, none of these things are obviously party political. they're to do with a more successful economy. so some degree of bipartisan policymaking has to be brought into effect. we have to end there, lord king. thank you very much for being on hardtalk. thank you.

hello. storm debi swept eastwards on monday, bringing some of us some very strong winds. you can see this hook of cloud and rain. it was on the southern edge of this hook where we saw a swathe of very strong winds across parts of northern ireland, north wales and north—west england. in fact, it looks like blackpool may have seen its strongest wind gust in nearly ten years. there was quite a lot of rain around as well. storm debi now clearing eastwards, but further frontal systems following from the west. it does stay quite unsettled. and one band of heavy, perhaps thundery rain and squally winds clipping close to the south of england and the channel islands as we go through the morning. it could be some quite intense downpours in places with some very gusty winds. that wet and blustery weather then tending to clear eastwards through the morning. further north, a band of cloud and rain across parts of northern england, up into scotland. that making some northward progress through the day. although the far north of mainland scotland and especially orkney

and shetland holding onto some sunshine. and then through the afternoon much of northern ireland, england and wales will see a mix of sunny spells and hefty showers. still quite blustery for some of us, highs of 8 to iii degrees. during tuesday night we'll see further showers or longer spells of rain. i think the wettest of the weather will be found across some central parts of scotland. temperature—wise, generally between 5 and 8 degrees. so we'll start wednesday morning with cloud and some outbreaks of rain across parts of northern ireland, north wales, northern england, southern and central parts of scotland. and some of that rain will continue through the day. but elsewhere, actually quite a lot of dry weather and some spells of sunshine, not too many showers. the winds easing just a touch and temperatures again between 8 and 13, maybe iii degrees. now, thursday's weather chart is quite a complex one, one weather system trying to approach from the southwest, another one a little bit further north.

there's some uncertainty about which of these will win out and end up on top of the uk for thursday. but either way, we're expecting some outbreaks of rain to push eastwards. it may be that we have some quite strong and blustery winds. temperatures again generally between 8 and 13 degrees. and an early look at the weekend weather, it does look quite unsettled. there'll be showers or longer spells of rain. low pressure firmly in charge, it could be quite windy as well.

live from london. this is bbc news. uk prime minister rishi sunak chairs the first meeting of his new cabinet this morning after a shock reshuffle. the world health organization warns that gaza's biggest hospital has become "nearly a cemetery". and iceland braces for a volcanic eruption after thousands of earthquakes are recorded near fagradalsfjall volcano. welcome to bbc news. i'm lukwesa burak. rishi sunak�*s newly formed cabinet will meet today — and there'll be a very familiar face at that table. the former prime minister, david cameron, has made a dramatic return to the uk government as foreign secretary.