Boom is over, says new bank chief

Mr King took over on 1 July

The new governor of the Bank of England has warned the consumer spending boom is over - and sterling's rising value on currency exchanges could hit the economy.

Mervyn King, on his first day as successor to Sir Edward George, has also pledged to change the Bank's management style.

He told the Times newspaper he would spend less time making speeches to the City and more time meeting people and businesses around Britain.

But Mr King also suggested the Bank would have to work hard to remain popular against a backdrop of weaker consumer spending.

"Where consumer spending, even though growing, is growing at a much slower rate, it's a harder job and we will have to redouble our efforts to make the case for stability," he told the Times.

Rate cut on the cards?

One of Mr King's first jobs will be to oversee a key decision on interest rates when the Monetary Policy Committee (MPC) meets on 9 and 10 July.

Mervyn King is taking over at a critical time in the Bank's history

Mervyn King profile

Interest rates are currently at a 48-year low of 3.75% but a number of economists have suggested a further cut is on the cards.

Mr King's comments on the strength of the pound, following its recent 3% gain of the foreign exchanges, will add fuel to these suggestions.

He said the rise was "perhaps the most significant change in the past month", and one that would make "some difference to the outlook for growth".

The Bank has previously used sterling's falling value as a case for not cutting interest rates.

Switching priorities

I think it's realistic to assume that there will now be a slow, modest, tentative, gradual recovery

Mervyn King

Mr King said he expected consumer spending to fall in coming months and suggested one of his challenges would be to switch resources from "private consumption to public consumption".

"Households will have to accept that part of the output they are producing is going to finance public expenditure and to reduce the trade deficit rather than going to household consumption," he told the newspaper.

But he sounded an optimistic note, suggesting that after "a number of major knocks to the world economy" in the past two years, there were better times ahead.

"I think it's realistic to assume that there will now be a slow, modest, tentative, gradual recovery back towards trend growth."

'Steady Eddie' George headed the bank for 10 years

Mr King's change of priorities extended to his own activities as he admitted "Eddie George's shoes are very large ones to fill".

He said the most important difference he wanted to make as Governor would be to visit every region of the nation every year, in a series of monthly tours.

"The difference in interest rates is really felt in towns and villages right across the UK.

"That's where I want to put my emphasis - going out and explaining what we do."

Euro move

On the long-debated question of the euro, Mr King refused to speculate on when or if Britain would join.

"I think the worst outcome would be one in which people felt perhaps we should join the euro because we can't manage our own monetary policy," he said.

The new Bank of England governor suggested there was "one large real benefit and one large cost" involved in joining the European single currency.

"The benefit is that you can exploit the single market more fully if you are part of a currency unit.

"If you stay out, you don't get that benefit but you have the advantage of being able to run your own monetary policy without being constrained by a one-size-fits-all policy."